Cloudflare Layoffs After Weaker Revenue Outlook
Cloudflare layoffs follow a trimmed Q2 revenue outlook as the firm pivots to agentic AI, prompting large restructuring charges and near-term cost pressure.
KEY TAKEAWAYS
- Announced roughly 20% staff cuts, about 1,100 roles, with $140-$150 million restructuring charges in 2026.
- Q2 revenue guidance of $664-$665 million fell short of consensus, signaling near-term revenue pressure.
- Company expects most charges in Q2 and plans to complete the restructuring by end of Q3 2026.
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Cloudflare, Inc. (NYSE: NET) announced layoffs on May 7 as it shifts to an agentic AI operating model following its first-quarter results and a lowered revenue outlook for the next quarter. The company said the changes aim to accelerate AI integration and reshape its go-to-market strategy.
Quarter Results and Outlook
Cloudflare reported first-quarter 2026 revenue of $639.8 million, a 34.0% increase year over year, according to its press release. The company provided second-quarter revenue guidance of $664 million to $665 million, which fell short of consensus estimates.
An SEC 8-K filing showed a GAAP loss from operations of $62.0 million, or 10.0% of revenue, and non-GAAP income from operations of $73.1 million, or 11.0% of revenue. The filing also reported a GAAP net loss of $22.9 million and non-GAAP net income of $94.0 million. Free cash flow was $84.1 million, or 13.0% of revenue, while operating cash flow reached $158.3 million.
The company set full-year 2026 revenue guidance between $2.805 billion and $2.813 billion, with non-GAAP earnings per share guidance of $1.19 to $1.20. GAAP gross margin narrowed to 71.2%, down from 75.9% a year earlier.
Restructuring and AI Pivot
Cloudflare plans to cut about 20.0% of its workforce, roughly 1,100 employees, to support its transition to an agentic AI-first operating model, the press release said. The company expects restructuring charges of $140 million to $150 million in 2026, including $105 million to $110 million in cash severance and benefits and $35 million to $40 million in non-cash equity-related costs. Most charges will be recorded in the second quarter, with the plan substantially complete by the end of the third quarter.
Executives reported AI usage increased more than 600% in the prior three months, describing AI as a major tailwind for products and operations. CEO Matthew Prince said, "With AI and agents now core parts of our workforce, the way we work at Cloudflare has fundamentally changed."
Management expects sales-force net capacity to accelerate by the end of 2026 as it retools its go-to-market approach. The company said this timeline will determine when expenses peak and when resources freed by the reorganization can support AI-led product changes and restore sales capacity.
