NET Stock Crashes 19% After Hours as Cloudflare Cuts 1,100 Jobs Despite Beating Q1 Estimates
Cloudflare beat Q1 estimates with 34% revenue growth and raised full-year guidance, then cut 20% of staff, sending NET shares down 19% after
Quick overview
- Cloudflare reported a strong Q1 with revenue of $639.8 million, up 34% year-over-year, but shares dropped 19% in after-hours trading.
- The decline was primarily due to the announcement of layoffs affecting over 1,100 employees, about 20% of its workforce, as part of a shift to an 'agentic AI-first operating model.'
- Despite the layoffs, Cloudflare's full-year guidance remains positive, with projected sales exceeding previous estimates.
- Investors are cautious following the layoffs and a slight miss in Q2 revenue guidance, leading to uncertainty about the company's restructuring and future performance.
Cloudflare (NYSE: NET) had a really solid Q1. Revenue of $639.8 million was up 34% year-over-year and surpassed projections by about $18 million. Consensus was $0.25 a share. Free cash flow increased to $84 million, or 13% of revenue. Performance requirements remained, up 34% year-over-year. Full year guidance was exceeded on both revenue and profitability. In theory, it was the type of quarter that should have propelled the stock higher.
Why Is Cloudflare Stock Down After Q1 Earnings?
Instead, shares dropped 19% in after-hours trading to $208.20, wiping out the stock’s 3.30% gain in the regular session. But the financial numbers weren’t the cause. It was what came with them: Cloudflare revealed it is laying off more than 1,100 employees, around 20% of its workforce, as part of a structural transition toward what CEO Matthew Prince dubbed a “agentic AI-first operating model.”
“This was not an easy decision but it’s the right decision,” Prince remarked on the earnings call. “We need different roles in the company than some of the roles that exist now.”
AI Is Changing the Company From Within
The framing Cloudflare provided for the cuts is not the typical cost-cutting narrative. Both Prince and co-founder Michelle Zatlyn were clear that this is a rethink of internal procedures and roles, driven by AI capacity, not by financial pressure or employee performance. Cloudflare’s internal AI usage has surged over 600% in the last three months, with bots doing work that used to need entire teams.
The company said it was embracing a “agentic AI-first operating model” – one in which AI agents are integral members of the workforce, rather than productivity tools applied on top of current staff. The suggestion is that those functions that needed 5,000+ personnel a year ago now need significantly less and it’s better to redesign the organization along those lines than to keep legacy manpower while AI is doing more and more.
The restructuring will result in a charge of $140-$150 million, mostly in Q2, with $105-$110 million in cash expenditures and $35-$40 million in non-cash share-based vesting expenses. Cloudflare has $4.16 billion in cash and securities on its balance sheet so it can easily absorb this.
Q2 Guidance Adds Another Layer of Caution for NET Investors
Aside from the layoffs, the Q2 revenue guide of $664-665 million was a little shy of the $665.3 million estimate by analysts — a little miss in absolute terms but enough to keep investor skepticism elevated on a night already fraught with negative sentiment. Q2 adj. EPS projection of $0.27 was in line with expectations.
The full year prognosis is brighter: sales of $2.805-$2.813 billion above the preceding average and adjusted EPS of $1.19-$1.20 tops the $1.14 projection. The annual numbers should hold, but Cloudflare has to execute the restructure cleanly and the efficiency gains need to show up in the second half.
NET Stock Technical Picture: Severe Damage After Hours
The stock dropped to $208.20 in after-hours from a $256.79 regular session finish, a drop of around $49 that is technically severe and would result in a big gap-down open if sentiment does not improve before Friday’s begin.
Support earlier in the year around $230-235 had served as a base, but will likely act as opposition on any comeback attempt. The immediate floor to watch is the $200 psychological level – holding there would be the minimum condition for bulls to argue the selloff is overdone. The 200-day moving average gives extra reference for the medium-term directional bias.
The upside is that any recovery toward $225-$230 would be a major technical bounce from oversold levels. To get back above $250, however, would require either a broader market tailwind, or signs that the restructuring is providing the efficiency improvements management has promised.
What’s Next for Cloudflare (NET) Stock?
Cloudflare had a great Q1 by any traditional measure. The problem is the workforce reduction announcement overshadowed everything — and the market’s 19% after-hours reaction speaks to real uncertainty about what a 20% headcount cut signals about the pace of disruption in AI, even if the company frames it as a strength rather than a distress signal.
For traders, the Friday gap-down open is a binary setup: The market either buys the AI reorganization narrative, and the stock stabilizes near $200–$210, or sustained selling to $190 seems likely. A solid hold over $200 with growing volume will be a hint to watch for a possible comeback move. For longer-term investors, the focus should be on whether H2 operating margins are meaningfully better – that would be the ultimate proof of the AI-first restructuring argument.
- Check out our free forex signals
- Follow the top economic events on FX Leaders economic calendar
- Trade better, discover more Forex Trading Strategies
- Open a FREE Trading Account
- Read our latest reviews on: Avatrade, Exness, HFM and XM
Related Articles
Sidebar rates
Related Posts
Save
