2026年第一季度：增长稳定；约20%的大规模裁员！

Peter Weed+1 917 344 8390peter.weed@bernsteinsg.comArmin Hadavi, CFA+1 917 344 8463 U.S. SMID-Cap SoftwareCloudflare Inc Rating armin.hadavi@bernsteinsg.com Market-Perform Price Target NET 136.00 USD(146.00OLD) Cloudflare (NET) Q1'26: growth steady; large ~20% RIF! Cloudflare’s Q1’26 earnings fell flat, as earnings “just” delivered a roughly consistent YoYgrowth rate (33.5% ) relative to Q4 (33.6%), and NRR fell to 118% (from 120% in Q4). Whilethis was a “normal” beat vs. guide, there was some hope for acceleration after strength inother Cloud Native consumption infrastructure seen in AWS or Datadog. Add to that their FYguide was “just” raised by the beat (vs. Q2-3 last year raised nearly 2x the beat). With thatsaid, we point out Q1’24 and Q1’25 saw no raise at all, so this could be considered “good”vs. the last two years. Management reemphasized that Q1 sequentially is smaller and smaller Big news: ~20% headcount reduction, refocus on key talent.Perhaps the even biggernews was the company would reduce headcount by ~1,100 heads. This is a strategic actiondirectly applying AI. It includes targeting support/back office roles, marketing functions theycan perform more efficiently, and any extraneous product areas not focused forward. Thisfrees resources for the company to hire aggressively in growth facing R&D and commercial Overall we continue to believe they will surf the wave of AI-driven workloads strength.We model this Cloud Native infrastructure growth for AWS and then use it as abellweather for other businesses like Cloudflare, too. This tailwind we assume for now peaksin H1’26 and then reverts to “normal” later this year and forward. We believe there is potentialupside, if the rate of AI investment remains more elevated — we will continue to monitor our Investment Implications We adjusted down this year’s revenue by roughly -$125MM given lighter Q1 than expected.Using a 50/50 weighted DCF (10% WACC, 3% terminal growth) and unchanged 16x Price/NTM sales, we lower our PT to $136 and maintain our MP rating. Reported P/E (x)N/MN/MN/MEV/EBITDA (x)N/M328.4215.6 DETAILS NOTES FROM CALLBACK WITH CEO Headcount cuts are driven by productivity and velocity rather than pure cost savings, with only ~40-50% flowing tothe bottom line.The remainder of the savings will be reinvested back into the business, and not all affected employees will exitimmediately. Importantly, leadership emphasized that the primary motivation for the RIF was improving execution speed andproductivity, not short-term cost cutting. The reductions span nearly every function, including product development, finance,legal, sales, and marketing, with a significant shift in support ratios as productivity-enhancing tools become more powerful. The headcount reset is intended to support growth acceleration, resulting in higher S&M investment.As a result ofthe workforce reduction, management expects sales and marketing expense to rise, framing this phase as a sprint for growth.Hiring freezes are viewed as counterproductive in that context, so the company prefers to cut selectively and reinvest where QoQ NRR pressure is driven largely by timing and seasonality rather than structural demand weakness, with largebookings often creating headwinds in subsequent quarters. In addition, Q4 is becoming increasingly backend weighted forthe business, which mechanically makes Q1 sequentially smaller. Management expects this dynamic to ease over time as YoY RPO appears weak due to an unusually difficult comparison rather than fundamental slowdown.This was impactedby tough comps following a very large deal last year, including the company’s first contract exceeding $100M. Normalizing for Gross margin volatility reflects product mix and free to paid conversion dynamics rather than worsening uniteconomics.Most of the Q1 gross margin deterioration stemmed from customers transitioning from free to paid offerings, and with continued onboarding of new free customers, full-year gross margin remains difficult to forecast precisely. Differentofferings carry different gross margins and cost-to-book profiles, but products with lower gross margins typically also have Two additional details: leadership cited Vercel as a competitor experiencing broadly similar trends. On Workers AI, managementhighlighted a strong pipeline and emphasized that agents represent more than inference, with ambition to position the company EXHIBIT 1:AWS web metrics are a signal we use toestimate AWS growth, and AWS growth has been acorrelated bellweather to Cloudflare’s growth, so thestrong initial performance into 2026 is an optimistic EXHIBIT 2:Dollar-based net retention rate dropped to118%, its highest in over a year, and we anticipate it toaccelerate, helping drive the business to more growth in EXHIBIT 3:Existing customer expansion maintainedstrong QoQ growth contribution as NRR ticked down to EXHIBIT 4:Mark Anderson joined to lead the newenterprise sales efforts in Q1’24, s