Cloudflare beats revenue forecasts, cuts 1,100 jobs to pursue AI-first model

Cloudflare posted a strong quarter, then stunned investors with a much sharper message: more than 1,100 employees, or about 20% of its workforce, will be cut as the company pivots to an “agentic AI-first operating model.” Shares fell 18% in extended trading after the announcement, which landed alongside first-quarter results that otherwise beat Wall Street expectations.

Revenue rose 34% from a year earlier to $639.8 million, topping estimates of $622 million. Non-GAAP earnings came in at 25 cents a share, ahead of the 23-cent forecast. But the market looked past the beat after Cloudflare said the layoffs were not a simple cost-cutting exercise and instead reflected a deliberate re-architecture of how the business works.

Chief executive Matthew Prince said AI has changed the company’s operations so quickly that some roles no longer fit the future Cloudflare wants to build. He called AI “the biggest tailwind we’ve ever seen” and said some jobs “just aren’t the roles that we need for the future.” The cuts, announced May 7, apply across functions and geographies, including engineering, HR, finance and marketing.

Cloudflare said its internal use of AI increased more than 600% over the prior three months, with employees already running thousands of AI-agent sessions each day. The company said 97% of its engineers use AI coding tools, a sign of how deeply the technology has already been woven into day-to-day work. During its Agents Week 2026 announcements, Cloudflare said its internal AI engineering stack had handled 20 million requests through AI Gateway, 241 billion tokens and more than 3,683 internal users.

The company is still guiding for growth. It forecast second-quarter revenue of $664 million to $665 million and full-year revenue of $2.805 billion to $2.813 billion, both roughly in line to slightly above expectations. Full-year adjusted earnings guidance of $1.19 to $1.20 a share also topped estimates. Cloudflare said it expects to take $140 million to $150 million in restructuring charges in 2026, with most of that hit landing in the second quarter.

The underlying business remains sizeable and profitable on a cash basis. First-quarter free cash flow was $84.1 million, up from $52.9 million a year earlier, and cash, cash equivalents and available-for-sale securities totaled $4.1639 billion as of March 31. The company also reported 4,416 customers paying more than $100,000 a year, up 25% from a year earlier, dollar-based net retention of 118%, and current remaining performance obligations of $2.543 billion, up 36%.

The move marks a stark turn for a company that had been talking up expansion only months ago. In September 2025, Cloudflare said it planned to hire as many as 1,111 interns in 2026, a nod to its 1.1.1.1 branding. Now, as software firms race to prove they can do more with less, Cloudflare is betting that AI-native workflows will justify a leaner headcount and a faster operating model.