In a surprising move, Cloudflare has reduced its workforce by approximately 20%, eliminating around 1,100 positions. According to CEO Matthew Prince, this decision was driven by advancements in AI technology that rendered these roles obsolete. This announcement comes during the company’s strongest quarter to date, showcasing impressive revenue of $639.8 million.
Prince emphasized that this marks a significant first in Cloudflare’s 16-year history.
CFO Thomas Seifert indicated that the layoffs affected all departments and regions, with the exception of sales personnel who meet their quotas.
Both Prince and co-founder Michelle Zatlyn clarified that these layoffs were not a reflection of cost-cutting measures or employee performance evaluations.
For them, this decision is about reshaping the operational model of a leading company in what they label “the agentic AI era.”
Cloudflare’s Revenue Grows, Margins Decline
Despite a notable 34% year-over-year increase in quarterly revenue, Cloudflare faced a widening net loss of $62 million, compared to the $53.2 million loss from the previous year.
The adjusted gross margins fell to a record low of 72.8%, a drop from 77.1% in the previous year.
Additionally, Cloudflare reported over $2.5 billion in remaining performance obligations, representing revenue that is contracted but not yet fulfilled. This figure also rose by 34% year over year.
Cloudflare’s Stock Experiences 15% Drop Amid Slow Growth Forecast
Following the strong first quarter results, Cloudflare’s stock (NYSE: NET) dropped more than 15% during premarket trading on Friday.
The reason for this downturn was the company’s guidance, which predicted Q2 revenue growth of approximately 30%, a slowdown compared to the 33.5% growth achieved in Q1.
Analysts noted that investor expectations had surged following a remarkable 43% rally in stock prices since February.
Despite the stock’s decline, four brokerages raised their price targets in response to the report, with the median target climbing to $243, according to Reuters.
Significant Surge in Cloudflare’s Internal AI Usage
Prince revealed that internal AI use within Cloudflare soared by over 600% in the last three months. Teams are reporting productivity gains of “two, 10, even 100 times” their previous outputs.
Nearly the entire research and development team is now utilizing Cloudflare’s own Workers platform for coding, including a unique feature referred to as “vibe coding.”
Every line of code released through this system is reviewed by autonomous AI agents, according to Prince. This shift allows highly productive employees to operate with fewer support staff.
When questioned about the necessity of such extensive layoffs after a successful quarter, Prince responded, “Just because you’re fit doesn’t mean you can’t get fitter.”
Cloudflare’s decision aligns with similar actions taken by other tech giants such as Meta, Microsoft, Amazon, and Jack Dorsey’s Block, who are all citing AI-driven productivity as a reason for workforce reductions.
However, some tech leaders, including Sam Altman of OpenAI, have warned that companies might be using AI as a justification for layoffs that would have occurred regardless.
Altman stated, “I don’t know what the exact percentage is, but there’s some AI washing where people are blaming AI for layoffs that they would otherwise do, and then there’s some real displacement by AI of different kinds of jobs.”
Prince mentioned that prior to the layoffs, Cloudflare closed Q1 with around 5,500 employees. He anticipates that the workforce will exceed its previous size in 2027.
Your bank is using your money. You’re getting the scraps. Watch our free video on becoming your own bank.
