San Francisco, CA – Cloudflare, Inc. (NYSE: NET), a leading connectivity cloud company, reported its financial results for the fourth quarter of 2024 yesterday. The company’s performance reflected robust growth, although its guidance for the upcoming quarter and fiscal year introduced a note of caution among investors.
Q4 2024 Performance Highlights
Cloudflare announced a revenue of $459.9 million for the fourth quarter, marking a 27% increase year-over-year, surpassing market expectations of $452 million. The company’s earnings per share (EPS) came in at $0.19, slightly beating the consensus estimate of $0.18. This performance underscores Cloudflare’s continued strong demand for its services, with significant growth in both revenue and customer base.
Key financial metrics included:
- Gross Margin: Achieved at 77.6%, a slight decrease from previous quarters but still within the company’s long-term target range.
- Operating Profit: Reached $67.2 million, with an operating margin of 14.6%.
- Free Cash Flow: Reported at $47.8 million for the quarter, contributing to a full-year total of $166.9 million.
- Large Customers: Cloudflare ended the year with 3,497 large customers, up 27% from the previous year, showcasing its expanding enterprise engagement.
- Dollar-Based Net Retention: Stood at 111%, a slight sequential increase, highlighting customer loyalty and growth in existing customer spend.
Strategic Developments and Innovations
During the earnings call, Cloudflare’s executives detailed their strategic focus on AI and customer-centric product development. The company is seeing an increase in AI-related workloads at the edge, with CEO Matthew Prince emphasizing the importance of this shift from AI training to AI inference for future growth.
Cloudflare also highlighted its compliance strategy with the announcement of FedRAMP High status, aiming to bolster its government business without compromising network integrity. This move is expected to enhance its market position in federal segments both domestically and internationally.
Outlook for Q1 and FY 2025
Despite a strong end to 2024, Cloudflare provided guidance that was below consensus for the first quarter of 2025:
- Q1 2025 Revenue: Expected to be between $468 million and $469 million, suggesting a year-over-year growth of about 24%, which is lower than what the market anticipated.
- Q1 2025 EPS: Forecasted at $0.16, below the consensus of $0.18 per share.
For the full year 2025, Cloudflare anticipates revenue to be in the range of $2.090 billion to $2.094 billion, which aligns with market expectations for a 25% year-over-year increase. However, the EPS guidance for the year was also below consensus at $0.70 to $0.72, against an expected $0.74.
Market Reaction
Following the earnings announcement, Cloudflare’s stock saw an initial positive reaction but settled with a more cautious uptick due to the conservative guidance. Posts on X indicated a mixed sentiment, with some investors focusing on the earnings beat while others expressed concern over the guidance, particularly for Q1 2025.
Conclusion
Cloudflare’s Q4 2024 results demonstrate a solid performance with significant year-over-year growth, driven by an expanding customer base and strategic product development. However, the cautious outlook for 2025 has introduced some uncertainty, reflecting broader economic conditions and perhaps a more conservative approach to forecasting in light of potential market volatility. Investors will likely keep a close watch on how Cloudflare navigates this landscape, especially with its ambitious plans in AI and enterprise markets.