Cloudflare (NET) stock tanked more than 17% in Friday’s pre-market trading despite the internet infrastructure and cybersecurity company announcing better-than-expected first-quarter results. The company’s announcement of 1,100 job cuts affected investor sentiment and dragged down the stock price. Also, Cloudflare’s Q2 guidance failed to impress investors.
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Insights into Cloudflare’s Q1 Results and Outlook
Cloudflare’s Q1 2026 revenue increased 34% year-over-year to $639.8 million, surpassing the Street’s consensus estimate of $621 million. Furthermore, adjusted EPS (earnings per share) surged 56% to $0.25, beating analysts’ consensus forecast of $0.23. The company’s results reflected rapid adoption of AI-driven developer solutions and strong momentum in large deals.
Looking ahead, Cloudflare expects Q2 adjusted EPS of $0.27, in line with expectations. It projects revenue in the range of $664 million to $665 million, slightly above the Street’s expectation of $663 million.
For the full year, Cloudflare guided revenue in the range of $2.805 billion to $2.813 billion and adjusted EPS between $1.19 and $1.20. Analysts expected EPS of $1.12 on revenue of $2.79 billion.
Workforce Reduction amid Change in Operating Model
Cloudflare is reducing its workforce by 1,100 employees as part of its efforts to further accelerate its transformation to an “agentic AI-first operating model.” The company expects these job cuts to result in charges of $140 million to $150 million.
Cloudflare expects the majority of these restructuring charges to be incurred in Q2 2026. The company said that the execution of this plan is expected to be completed by the end of the third quarter.
Morgan Stanley Reacts to Q1 Results and Updates
Following the Q1 2026 print, Morgan Stanley analyst Keith Weiss reiterated a Buy rating on Cloudflare stock with a price target of $245. The 5-star analyst highlighted three key catalysts that drove Q1 beat:
- Solid agentic AI demand that is broadening across the company’s entire portfolio, not just the Developer Platform, but also CDN/AppSec and Zero Trust (as well as the Agentic Web opportunity) areas, as enterprises are keen to build, operate, and secure agents at scale. Weiss highlighted that Cloudflare added more than 1 million developers in Q1 2026, bringing the total to more than 5.5 million.
- Robust go-to-market execution, as sales productivity increased year-over-year for the ninth consecutive quarter. Interestingly, deals worth more than $1 million grew 73% year-over-year, the fastest rate since 2024. Also, new pipeline generation grew at the fastest pace in five years.
- Weiss noted that Cloudflare is transforming itself for the agentic era. It announced job cuts to “fully embrace an agentic AI-first operating model, which aligns with improving internal AI-driven efficiencies.” Notably, Cloudflare’s AI usage has surged by over 600% in the last three months.
Is NET a Good Stock to Buy?
Wall Street has a Moderate Buy consensus rating on Cloudflare stock based on 19 Buys, seven Holds, and one Sell rating. The average NET stock price target of $234.23 indicates a downside risk of 9% following a 30% year-to-date rally as of Thursday’s closing.
These price targets/ratings could be revised as more analysts react to the company’s updates.
