Cloudflare is cutting about 1,100 employees — roughly 20% of its global workforce — citing the adoption of AI tools that it says have reshaped how the company operates. The announcement Thursday came alongside a first-quarter earnings report that beat Wall Street expectations on both revenue and profit.
Revenue for the quarter totaled $639.8 million, up 34% compared with the year-ago period. Wall Street had penciled in $622 million in revenue and a 23-cent per-share profit, making the adjusted result of 25 cents and the $84.1 million in free cash flow — equal to 13% of revenue — a beat on both counts, according to CNBC.
Alongside the earnings report, CEO Matthew Prince and President Michelle Zatlyn
Prince and Zatlyn addressed employees in a letter to staff posted online that framed the workforce reduction as neither a belt-tightening measure nor a reflection of how individuals had performed. "Today's actions are not a cost-cutting exercise or an assessment of individuals' performance; they are about Cloudflare defining how a world-class, high-growth company operates and creates value in the agentic AI era," they wrote.
AI tool adoption among Cloudflare staff surged more than 600% during the quarter. Rather than rolling out departures in waves, the company opted for a single, immediate reduction, citing a desire not to leave affected employees in limbo over several quarters. As of Dec. 31, Cloudflare employed 5,156 full-time staff.
Total restructuring charges are projected at $140 million to $150 million, with cash outflows for severance and benefits accounting for $105 million to $110 million of that figure and non-cash equity-related expenses making up the remaining $35 million to $40 million. The bulk of those charges will hit the books in Q2, and Cloudflare expects the reorganization to be largely wrapped up before Q3 ends.
For the full year, Cloudflare projected revenue of $2.805 billion to $2.813 billion and adjusted per-share earnings of $1.19 to $1.20. The Q2 revenue outlook landed at $664 million to $665 million.
Investors were not reassured by the strong financial results: Shares shed roughly 18% to 19% of their value in Thursday's extended session.