Cloudflare (NET) Q3 2025: RPO Jumps 43% as Enterprise Pipeline and AI Bets Accelerate Platform Shift
Cloudflare’s 43% RPO surge and reacceleration in large customer growth underscore the company’s successful pivot to enterprise sales and platform expansion, with AI and SASE adoption fueling new vectors for long-term commitment. Management’s confidence in reaching $5B revenue by 2028 is bolstered by robust execution, though leadership transition and evolving AI business models bear watching. Investors should focus on Cloudflare’s ability to sustain sales productivity and margin discipline as AI-native workloads and multi-cloud strategies reshape the competitive landscape.
Summary
- Enterprise Pipeline Expansion: Platform-wide adoption and record large customer wins are driving multi-year contract momentum.
- AI and SASE Catalysts: Early traction in AI inference and SASE products is creating new growth vectors and margin levers.
- Leadership and Execution Watchpoint: Product leadership transition and evolving AI business models warrant close monitoring as Cloudflare scales.
Performance Analysis
Cloudflare delivered a second consecutive quarter of revenue acceleration, with total revenue up 31% year-over-year, driven by robust expansion among large enterprise customers and a record net addition of nearly 30,000 paying customers. Large customers now account for 73% of total revenue, up from 67% a year ago, highlighting the company’s successful shift from product-led growth to enterprise sales. The U.S. region was a particular standout, with revenue growth of 31% year-over-year and increased partner-driven bookings.
Gross margin remained healthy at 75.3%, within the long-term target, despite a modest sequential decline due to higher paid customer traffic and ongoing investment in the Workers developer platform. Operating expenses as a percentage of revenue declined, reflecting increased sales efficiency and disciplined R&D allocation. Free cash flow improved to $75 million, or 13% of revenue, and remaining performance obligations (RPO) surged 43%, underscoring long-term demand visibility.
- Large Customer Mix Shift: Record growth in >$1M and >$5M cohorts provided a significant tailwind to expansion metrics.
- Platform Expansion Drives RPO: Multi-year, multi-product deals and pool of funds contracts are increasing customer stickiness and future revenue visibility.
- AI and Workers Platform Outperformance: Workers adoption for AI inference and developer workloads is outpacing legacy product growth.
Cloudflare’s disciplined capital allocation and growing enterprise salesforce productivity have enabled both margin expansion and reinvestment in innovation, positioning the company for continued durable growth.
Executive Commentary
"We now have 4,009 large customers, those that pay us more than $100,000 per year, a 23% increase year over year... The decisive factor of the win was AI. This customer looked at the landscape and correctly identified CloudFlare as the only company building the essential platform to protect and manage content for the emerging AI-driven web."
Matthew Prince, Co-founder & Chief Executive Officer
"Revenue growth accelerated for the second consecutive quarter to 31% year over year, providing clear evidence of the momentum building in our business... Our performance over the last two quarters demonstrates that we are effectively executing against both of these objectives. In fact, we expect to reach a $3 billion annualized revenue run rate in the fourth quarter of 2026 on our journey to $5 billion and beyond."
Thomas Seifert, Chief Financial Officer
Strategic Positioning
1. Enterprise Sales Transformation
Cloudflare’s pivot from product-led growth to enterprise sales is yielding tangible results: higher average contract values, longer commitments, and deeper platform penetration. The company’s go-to-market transformation is evident in improved salesforce productivity, higher close rates, and a record pipeline of large deals. Multi-year, multi-product contracts—especially “pool of funds” deals, which allow customers to flexibly consume across Cloudflare’s 55+ products—are now a low double-digit share of total annual contract value, driving RPO growth and future revenue visibility.
2. AI-Native Workloads and Platform Differentiation
AI inference and developer workloads are emerging as a structural growth driver, with Cloudflare’s Workers platform enabling customers to deploy and manage AI agents and full-stack applications at the edge. While AI-native revenue remains de minimis (no customer >2% of revenue), the company estimates 80% of leading AI companies already rely on its infrastructure. Cloudflare’s architecture enables high utilization and cost efficiency, setting it apart from hyperscalers and reducing customer egress fees—a key competitive advantage as multi-cloud adoption accelerates.
3. SASE and Security Margin Levers
Secure Access Service Edge (SASE) adoption is accelerating, with Cloudflare winning competitive takeaways from legacy VPNs and first-generation zero trust vendors. The company is doubling down on partner-led sales motions, recognizing that channel is the dominant route to market for SASE. These products carry structurally higher gross margins, providing a counterbalance as newer developer workloads ramp.
4. Innovation Pipeline and Regulatory Navigation
Cloudflare continues to invest in new business models and protocols, such as NetDollar for agent-to-agent commerce and post-quantum cryptography for future-proof security. The company is positioning itself as a “universal translator” for emerging AI agent protocols and is actively partnering with industry and regulators to shape standards and ensure compliance. This forward-leaning innovation is both a differentiator and a source of future optionality.
5. Leadership Transition and Organizational Resilience
The departure of Chief Product Officer CJ Desai introduces some uncertainty, but management emphasized the strength and depth of the product and engineering bench. The customer-obsessed culture and innovation cadence are expected to persist, with the company well positioned to attract top talent and maintain execution momentum.
Key Considerations
Cloudflare’s Q3 results reflect both the rewards and risks of scaling a platform business at the intersection of AI, security, and developer infrastructure. Investors should weigh the following:
- Enterprise Sales Maturity: Sustained sales productivity gains and large deal momentum are critical as Cloudflare scales into a more seasonal, enterprise-driven revenue mix.
- AI Revenue Ramp: While AI-native workloads are growing rapidly, they remain a small portion of revenue; broad-based adoption and monetization will take time.
- Margin Balance: SASE and security products offer high-margin upside, but continued investment in Workers and AI may create near-term gross margin variability.
- Leadership Depth: Product leadership transition puts a spotlight on the company’s ability to maintain innovation velocity and customer focus.
- Multi-Cloud and Data Mobility: Eliminating egress fees and enabling data portability position Cloudflare as a key enabler of multi-cloud strategies, but also invite competition from hyperscalers and emerging AI-native platforms.
Risks
Key risks include execution on enterprise sales as seasonality increases, margin pressure from rapid platform expansion, and the uncertainty of AI-native business model evolution. Leadership transition in product and engineering could disrupt innovation cadence. Regulatory hurdles around new payment protocols (e.g., NetDollar) and intensifying competition from hyperscalers and specialized AI platforms may also impact growth and profitability.
Forward Outlook
For Q4 2025, Cloudflare guided to:
- Revenue of $588.5 to $589.5 million (28% YoY growth implied)
- Operating income of $83 to $84 million
- Diluted net income per share of $0.27
For full-year 2025, management maintained guidance:
- Revenue of $2.142 to $2.143 billion (28% YoY growth implied)
- Operating income of $297 to $298 million
- Diluted net income per share of $0.91
Management emphasized confidence in the enterprise pipeline, continued sales productivity gains, and robust demand for both developer and security products as drivers for sustained growth into 2026 and beyond.
- Enterprise seasonality is expected to increase, with Q4 traditionally stronger.
- AI and multi-cloud adoption are expected to drive incremental platform expansion.
Takeaways
Cloudflare’s execution on enterprise sales and platform expansion is delivering accelerating growth and improved visibility, but investors should monitor margin trends, leadership transition, and AI monetization pace.
- Enterprise Shift Is Working: Record RPO growth and large customer wins validate the strategy, with multi-year contracts locking in future revenue streams.
- Innovation Remains Core: AI, SASE, and new payment protocols are expanding Cloudflare’s TAM, but require ongoing investment and regulatory navigation.
- 2026-2028 Trajectory in Focus: The $3B run-rate target for late 2026 and $5B by 2028 hinge on continued sales execution, product adoption, and talent retention.
Conclusion
Cloudflare’s Q3 performance underscores a successful transition to enterprise-led growth, with AI and SASE providing new vectors for expansion. While execution risk remains, especially amid leadership transition and evolving business models, the company’s strategic positioning and operational discipline support a compelling long-term outlook for investors.
Industry Read-Through
Cloudflare’s results signal accelerating demand for integrated security, developer, and AI infrastructure platforms, with multi-cloud enablement and data portability becoming critical differentiators. The shift toward enterprise sales and channel partnerships in SASE echoes broader industry trends, as legacy vendors and hyperscalers face disruption from nimble, innovation-driven players. AI-native workloads are reshaping infrastructure requirements, and the elimination of egress fees is likely to pressure hyperscaler economics while empowering customers to pursue best-of-breed, multi-cloud strategies. Competitors and partners alike should monitor Cloudflare’s evolving role as a connective tissue for the agentic, AI-powered internet.