Review of Q2 earnings. Cloudflare (NET-NR) reported solid Q2 numbers as revenues of $401 million grew 30% yr/yr and EPS of $0.20 beat consensus of $0.14. NET added >3k large customers (customers >100k annualized revenue) in the quarter and delivered FCF of $38.3 million.

Q3 outlook reflects continual progress NET is making while navigating a tight IT spending environment. NET put forth Q3 guidance $423m-$424m (which represents 26%yr/yr growth at the mid-point) and EPS of $0.18.

NET is competing in the crowded SASE market and announcing customer wins. Security and Networking capability are integrated into the SASE offering with security functions like DDoS and DLP built in. Although the SASE market has bifurcated as certain vendors are focusing on the Security function with SSE, NET has the capability to bring the network and security functionality together. NET has constructed an underlying network we believe will make the company a force to be reckoned with in the crowded SASE market.

Management spoke of the breadth of its product line as a key factor in the company's success in Q2. The breadth of product could enable NET to consolidate certain areas of the IT Security market.

NET also pointed out the ongoing success of its Workers Platform (active developer accounts grew 20% in the June quarter). NET has been courting developers on its Workers platform as it makes its push into the AI space specifically AI Inference. We look for NET to be a beneficiary of the ongoing AI build-out.

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Cloudflare, Inc.

Technology

Cloudflare (NET-NR) - Q2 Earnings Review... Progress in a difficult environment

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