Cloudflare, Inc.: Confident in $5B FY28 Exit Rate; Higher LT EBIT Margins, with Changing Mix Creating GM Journey

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Cloudflare, Inc.: Confident in $5B FY28 Exit Rate; Higher LT EBIT Margins, with Changing Mix Creating GM Journey

Barclays | Cloudflare, Inc.

presentation was more long-term focused, there were three near-term financial tidbits worth

flagging. First, it was interesting to hear that pipeline was up 40%+ y/y in 1Q26, reflecting the

increasing sales productivity and growing sales capacity – President and CRO Mark Anderson

was a key architect of the GTM modernization, so it's also important to note that he is retiring

at year-end with Cloudflare commencing a search for his replacement. Second, one of the

questions we got last quarter was why there was not more revenue/cRPO bookings upside

given the inflection in traffic – and we think part of this from the volume-based cap model

with products within Act 1 for example, which means revenue will likely lag this traffic

inflection. The other point here is that a growing mix of pool-of-funds (PoF) contracts means

more contracts are ramping, which also delays some of the revenue recognition despite

growing network traffic. Third, an important topic we previewed was the path on gross

margins where NET talked about the mix impacts from the different Acts that could weigh

near-term – but it was good to hear that we could see stabilization here in 2Q, though the

journey back to the long-term target range will not be linear. Importantly, to the extent NET

sees a move down on gross margins, it would likely come with the benefit of faster growth in

areas like Act 3, which is positive long term in our view.

•• Investable themes: (1) agentic traffic now surpasses human traffic – that is changing the

business model of the internet; (2) architecture of Workers AI built on Isolates makes