Cloudflare shares plunged more than 20% Friday after the company’s better than expected Q1 results were overshadowed by plans to cut about 1,100 employees as part of a broader shift toward an AI first operating model.
The company reported $639.8 million in revenue for the first quarter, up 34% from a year earlier. Cloudflare posted a GAAP net loss of $22.9 million, or $0.07 per share, while non GAAP net income rose to $94 million, or $0.25 per diluted share.
Cloudflare said the restructuring is designed to accelerate its move toward what it called an agentic AI first operating model. The company expects to reduce its current workforce by about 1,100 people and incur $140 million to $150 million in charges, mostly in the second quarter.
The announcement rattled investors despite the earnings beat. Analysts had expected about $622 million in revenue and $0.23 in adjusted earnings per share, while Cloudflare reported $639.8 million in revenue and $0.25 in adjusted EPS.
Cloudflare also issued Q2 guidance for revenue of $664 million to $665 million, with non GAAP income from operations of $90 million to $91 million. For full year 2026, the company expects revenue of $2.805 billion to $2.813 billion and non GAAP EPS of $1.19 to $1.20.
CEO Matthew Prince said AI is driving a fundamental replatforming of the internet and described it as the biggest tailwind in Cloudflare’s history. The company said AI and agents are now core parts of its workforce, changing how Cloudflare operates internally.
Still, the market focused on the size and timing of the cuts. Cloudflare shares were down about 22.6% at $198.85 at press time, after trading as low as $192.60 during Friday’s session.
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