NET Q3 Deep Dive: Enterprise Momentum, AI Partnerships, and Product Expansion Drive Growth

Cloud security and performance company Cloudflare (NYSE:NET) reported Q3 CY2025 results exceeding the market’s revenue expectations, with sales up 30.7% year on year to $562 million. Guidance for next quarter’s revenue was better than expected at $589 million at the midpoint, 1.5% above analysts’ estimates. Its non-GAAP profit of $0.27 per share was 15.4% above analysts’ consensus estimates.

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StockStory’s Take

Cloudflare delivered a strong Q3 performance, with results surpassing Wall Street’s expectations and the market responding positively. Management attributed the quarter’s momentum to a surge in large enterprise deals, notable wins across government and media clients, and continuing gains in sales productivity. CEO Matthew Prince highlighted the transition from a product-led growth model to a true enterprise sales approach as a key driver, noting, “You’re seeing the average tickets tick up. You’re seeing the large deals tick up. And that’s driving just success in taking what have always been exceptional products and getting them in the hands of customers.”

Looking ahead, Cloudflare’s guidance reflects confidence in sustained revenue expansion, underpinned by a growing pipeline of enterprise opportunities and increased adoption of its AI and developer platforms. Management emphasized the company’s strategic position as a leading network for the emerging AI-driven web, with Prince stating, “We estimate 80% of the leading AI companies already rely on us.” The team is also focused on operational efficiency and expanding its partner-led sales motion to maintain high gross margins and further accelerate growth in upcoming quarters.

Key Insights from Management’s Remarks

Management pointed to multiple factors behind Cloudflare’s Q3 performance, including enterprise customer adoption, product diversification, and sales force transformation.

• Enterprise sales transformation: The shift from product-led growth to a dedicated enterprise sales strategy resulted in larger deal sizes and higher retention among major customers, with a record number of clients now spending over $1 million annually.
• AI-driven product traction: Cloudflare’s developer platform, Workers, experienced outsized growth as AI-native companies increasingly adopted it for running inference workloads and building applications, reinforcing Cloudflare’s relevance in the evolving AI ecosystem.
• Partner-led go-to-market acceleration: Management cited a significant uptick in bookings initiated by partners, particularly for SASE (Secure Access Service Edge) and cloud security products, as Cloudflare doubled down on its channel strategy to compete more effectively with industry peers.
• Customer wins and competitive displacement: The company secured major contracts, including a $22.8 million deal with a global digital media platform and a $20 million U.S. government agency renewal, often displacing legacy vendors and public cloud incumbents due to its unified platform and cost efficiency.
• Leadership transition: Chief Product Officer CJ Desai’s departure was addressed, with CEO Prince emphasizing the depth of Cloudflare’s engineering talent and continued focus on customer-centric product development.

Drivers of Future Performance

Cloudflare’s outlook is driven by ongoing enterprise expansion, AI platform adoption, and a focus on channel partnerships to sustain revenue and margin growth.

• AI platform and developer adoption: Management expects further growth in Workers and AI-related offerings as more companies seek to run inference workloads and leverage Cloudflare’s network for low-latency, cost-efficient operations. The company is positioning itself as the backbone for emerging AI-driven business models, which could open new revenue streams.
• Partner-first sales strategy: By prioritizing partner-led sales, especially in SASE and security, Cloudflare aims to reach broader enterprise audiences and accelerate deal velocity. This strategy is also expected to support higher gross margins due to the favorable economics of these products.
• Operational discipline and margin focus: While investing in product innovation and go-to-market expansion, management is committed to maintaining strong unit economics and operating leverage. Risks include potential AI industry volatility, customer concentration concerns, and the need for ongoing investment in network capacity to support new workloads.

Catalysts in Upcoming Quarters

In future quarters, our analyst team will closely monitor (1) the pace of enterprise customer additions and upsell activity in large accounts, (2) deployment and monetization progress for AI and developer platform products, and (3) execution of the partner-first sales strategy, particularly for SASE and security solutions. The ability to recruit and integrate new product leadership following CJ Desai’s departure will also be a key signpost.

Cloudflare currently trades at $238.53, up from $222.49 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).

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