Cloudflare Q2 2026 Earnings: Revenue Rises 36% as Restructuring Widens GAAP Loss

Cloudflare (NYSE: NET) reported fiscal Q2 2026 revenue of $696.1 million, up 36% year over year, while non-GAAP diluted EPS rose to $0.29 from $0.21; GAAP diluted loss per share widened to $0.48 from $0.15. Revenue and cash generation improved, but lower gross margins and a $150.7 million restructuring charge contributed to a much larger GAAP operating loss.

Core Earnings Data

Revenue growth was accompanied by 35% year-over-year growth in current remaining performance obligations, or current RPO, indicating that contracted demand expanded at a similar rate to reported revenue.

Profitability was mixed. Non-GAAP operating income and EPS increased, but both GAAP and non-GAAP gross margins declined, while the restructuring charge pushed the GAAP operating margin substantially lower.

Profitability, Cash Flow, and Balance Sheet

GAAP cost of revenue increased to $196.5 million from $128.7 million, or approximately 53%, faster than the 36% increase in revenue. That difference resulted in GAAP gross margin declining to 71.8% from 74.9%. Non-GAAP gross margin followed the same direction, falling to 73.1% from 76.3%. The release did not identify a specific operating factor behind the gross-margin contraction.

Total GAAP operating expenses reached $705.2 million, including the $150.7 million restructuring charge. Excluding only that charge, operating expenses were approximately $554.5 million, about 23% above the prior-year period. That was slower than revenue growth and helped support higher non-GAAP operating income, although the non-GAAP operating margin still slipped by 0.3 percentage points.

Quarterly operating cash flow increased to $117.6 million, while free cash flow rose to $56.4 million and expanded to 8% of revenue. As of June 30, 2026, Cloudflare held $4,162.8 million in cash, cash equivalents, and available-for-sale securities. Convertible senior notes had reported carrying values of $1,293.3 million in current liabilities and $1,977.0 million in noncurrent liabilities.

Restructuring and Stock Compensation Drove the GAAP–Non-GAAP Divide

Cloudflare’s reconciliation bridges a $205.7 million GAAP operating loss to $96.1 million of non-GAAP operating income through approximately $301.8 million of adjustments. The two largest were the $150.7 million restructuring charge and $140.6 million of stock-based compensation and related employer payroll taxes.

Because the restructuring charge was absent in the prior-year quarter and excluded from non-GAAP results, it explains much of the divergence between the sharply wider reported loss and the increase in adjusted operating income. Acquired-intangible amortization, acquisition-related expenses, and a legal reserve accounted for the remaining adjustments.

Financial Guidance

Cloudflare provided quantitative guidance for the third quarter and full fiscal year. The Q3 revenue range implies approximately 5.7% to 5.9% sequential growth from Q2; the release did not include previous guidance ranges, so it is not possible to determine whether the full-year outlook was raised, lowered, or maintained.

Both EPS ranges assume approximately 374 million weighted-average common shares outstanding.

Management’s View

CEO Matthew Prince said Cloudflare achieved record growth in total paying customers, large customers, and developers on its platform, although the release did not provide the underlying customer counts. Management presented the shift toward AI answer engines, agent-driven commerce, and machine-to-machine internet traffic as a strategic opportunity for Cloudflare’s infrastructure, controls, and developer tools. The company did not quantify how much Q2 revenue was directly attributable to AI-related demand.

Risks Investors Should Monitor

• Gross-margin pressure: GAAP and non-GAAP gross margins declined by 3.1 and 3.2 percentage points, respectively, as cost of revenue grew faster than sales.
• Large gap between reported and adjusted profitability: Restructuring and stock-based compensation-related costs together totaled approximately $291.3 million, making the treatment of excluded expenses important when evaluating profitability.
• Expense control after restructuring: The $150.7 million charge materially increased the GAAP operating loss. Future results will show whether the associated actions lead to a lower operating cost burden.
• Conversion of demand indicators into revenue: Current RPO increased 35%, close to the 36% revenue growth rate. Sustaining that relationship will be important for delivering the company’s Q3 and full-year outlook.

Summary

Cloudflare’s Q2 2026 results combined 36% revenue growth, higher adjusted earnings, and improved free cash flow with meaningful gross-margin contraction and a restructuring-driven increase in its GAAP loss. The next points to monitor are whether gross margins stabilize, how operating expenses develop after the restructuring, and whether current RPO growth converts into revenue within the ranges provided by management.