Cloudflare Q1 2024 Earnings Call

• Cloudflare's Q1 2024 earnings call discussed the company's financial results and business highlights
• The call took place on May 9, 2024
• The executives on the call included Matthew Prince (CEO), Michelle Zatlyn (President & COO), and Thomas Seifert (CFO)

Financial Highlights

• Q1 revenue was $378.6 million, up 30% year-over-year
• US revenue grew 27% year-over-year, while international revenue grew 36% year-over-year
• Gross profit was $292.0 million, representing a gross margin of 77.1%
• Operating loss was $40.7 million, or 10.8% of revenue
• Non-GAAP operating income was $44.1 million, or 11.7% of revenue
• Net loss per share was $0.12
• Non-GAAP net income per share was $0.16
• Cash, cash equivalents, and marketable securities totaled $1.7 billion

Business Highlights

• Cloudflare protects approximately 20% of the Fortune 1000
• Over 176,000 paying customers
• Large customer growth: 2,756 customers spending over $100,000 annually (up 33% year-over-year)
• Record quarter for adding $1 million+ ARR customers
• Announced expansion of partnership with Microsoft to bring Zero Trust solutions to more organizations
• The company blocked 4.5 trillion cyber threats in Q1
• Cloudflare AI Gateway is gaining traction
• Functions-as-a-service (serverless) compute continues to grow strongly
• Cloudflare is focused on being a leader in AI inference
• Strong momentum in Zero Trust and network services

Q&A Session

• The Q&A session covered various topics, including AI, competition, sales strategies, and the overall macroeconomic environment
• Executives addressed questions from analysts about growth drivers, market opportunities, and financial outlook
• Mentioned the integration of Zero Trust solutions with Microsoft
• Discussion on how durable the cloudflare business remains, even with difficult macro headwinds

Full Year 2024 Guidance

• Revenue: $1.648 billion to $1.652 billion
• Non-GAAP operating income: $171 million to $175 million
• Non-GAAP diluted EPS: $0.69 to $0.70

Strategic Priorities

• Focus on innovation and product development to address evolving customer needs
• Expanding partnerships and integrations to broaden reach
• Investing in sales and marketing to drive customer acquisition
• Improving operational efficiency and scalability
• Targeting large enterprise customers to drive growth

Cloudflare AI

• Cloudflare AI is a significant area of investment and focus
• The company is positioning itself as a platform for AI inference
• Emphasis is on providing the infrastructure and tools needed for AI workloads
• Cloudflare intends to stay ahead of the competition in AI
• Cloudflare AI enables companies to run AI models closer to the end user

Zero Trust

• Zero Trust security solutions are a key growth area
• Cloudflare is expanding its Zero Trust offerings through partnerships and integrations
• Zero Trust helps organizations secure their networks and applications
• Zero Trust is used to protect users, devices, and data

Network Services

• Network services include VPN, SD-WAN, and other networking solutions
• Cloudflare is investing in network services to provide customers with a comprehensive suite of networking capabilities
• Network services are becoming increasingly important as organizations adopt cloud-based infrastructure

Competition

• Competition in the cloud and security markets is intense
• Cloudflare competes with large cloud providers, security vendors, and networking companies
• Cloudflare differentiates itself through innovation, performance, and a comprehensive platform

Sales and Marketing

• Cloudflare is investing in sales and marketing to drive customer acquisition and growth
• Sales efforts are focused on targeting large enterprise customers
• Marketing initiatives are designed to raise awareness of Cloudflare's brand and solutions

Macroeconomic Environment

• The macroeconomic environment remains uncertain
• Cloudflare is closely monitoring economic conditions and adjusting its strategies accordingly
• Economic uncertainty makes revenue predictions more difficult

Q1 Financial Performance

• Revenue growth driven by both new customer acquisition and expansion within existing customers
• Gross margin remains strong due to Cloudflare's efficient infrastructure
• Investing in R&D and sales/marketing to support future growth
• Non-GAAP profitability reflects disciplined cost management

Cloudflare's Platform

• Cloudflare's platform is designed to be scalable, reliable, and secure
• It provides a wide range of services, including security, performance, and application development
• Platform approach allows Cloudflare to address multiple customer needs
• Single, unified control plane

Cloudflare Workers

• Cloudflare Workers is a serverless compute platform that allows developers to deploy code at the edge
• Workers is a key component of Cloudflare's application development platform
• Serverless compute enables developers to build and deploy applications more quickly and easily

Customer Success

• Cloudflare is committed to customer success
• The company provides a variety of resources and support to help customers get the most out of its platform
• Customer satisfaction is a key priority

Product Innovation

• Product innovation is essential to Cloudflare's long-term success
• The company is constantly developing new products and features to meet the evolving needs of its customers
• Innovation drives differentiation and competitive advantage

Strategic Partnerships

• Strategic partnerships are an important part of Cloudflare's growth strategy
• The company partners with other technology companies to expand its reach and offer more comprehensive solutions
• Partnerships enables Cloudflare to integrate its technologies with other platforms

Guidance and Outlook

• Cloudflare provides guidance for revenue, operating income, and EPS (earnings per share)
• Guidance reflects the company's expectations for future performance
• Cloudflare's outlook is based on its current assessment of the market and its competitive position

Q&A Analysis

• Main topics included AI strategy, large deal closing processes, the impact of macroeconomics, and competitive positioning
• Executives clarified Cloudflare's unique approach to AI inference and edge computing.
• The sales cycle for larger deals and pipeline management were discussed
• Cloudflare addressed some questions towards its current performance during a period of macroeconomic pressure

Strategic Outlook in AI

• Cloudflare’s long term objectives include AI inference; using its global network to place AI models close to users
• Aiming to reduce latency and improve performance for AI applications.
• Plans involve building a comprehensive AI platform for developers.
• The AI elements will be integrated to the existing platforms

Competitiveness

• Cloudflare's differentiation stems from its integrated platform, global network, and focus on innovation
• Competitiveness in the market is dependent on quick innovation and adaptation to technological shifts

Financial Projections

• Revenue expectations are based on current sales execution and pipeline visibility
• Guidance considers seasonality and potential macroeconomic impacts.
• Aiming for operational profits and efficiency improvements.