Cloudflare Inc. (NYSE:NET) delivered another standout quarter marked by robust revenue growth and improving customer metrics, reinforcing its execution strength and momentum in enterprise adoption.
However, slowing remaining performance obligations and the sudden exit of a senior executive tempered enthusiasm, even as the company raised its near-term sales outlook, signaling confidence in sustaining demand amid a premium valuation backdrop.
JPMorgan analysts, led by Mark R. Murphy, maintained their Neutral rating and $135 price forecast for Cloudflare.
Also Read: Cloudflare Partners With Top Payment Giants To Build Trust In Agentic Commerce
Expanding AI and Workers Platform Drive Market Opportunity
Analysts said the company's expanding AI initiatives and Workers platform are broadening its total addressable market, positioning Cloudflare as a universal translator of the emerging agentic Internet.
However, analysts cautioned that the stock's premium valuation remains a concern, trading at 256 times 2026 estimated free cash flow, while growing roughly 30%. They noted that such levels leave limited room for error, even with strong execution.
Valuation Pressures Across High-Growth Software Stocks
The report described this as part of a broader re-rating across high-growth software stocks, where the limited number of companies still growing above 30% has fueled a premium shift in valuations.
While Cloudflare continues to execute strongly, analysts said market sentiment has become overly optimistic, pushing valuations to unusually high levels and making the risk-reward balance less compelling .
Financial Highlights: Revenue and Margin Performance
Third-quarter revenue rose 30.7% year-over-year, beating Street consensus of 26.6% and marking the biggest upside since the second quarter of 2022.
Adjusted operating margin reached 15.3%, about 130 basis points above expectations, while gross margin compressed to 75.3% due to higher costs tied to customer traffic.
Net revenue retention improved to 119% from 114% last quarter, supported by record additions of large customers, including $23 million and $34 million multi-year deals.
Cloudflare raised its fourth-quarter and full-year 2025 guidance, projecting fourth-quarter revenue growth of 28.1% versus Street consensus of 26.3%. At the midpoint, full-year revenue is now seen $28 million higher, and operating income up $12.5 million to $297.5 million.
The company also reaffirmed its target of $5 billion in annualized revenue by 2028 and introduced a new $3 billion goal for 2026. Analysts noted that the updated outlook reflects continued top-line confidence and operating discipline.
Leadership Changes and Succession Planning
The report highlighted leadership changes, with CJ Desai, the President of Product & Engineering, departing to become the CEO of another tech firm.
Analysts said Desai played a key role in Cloudflare's shift from product-led growth to an enterprise motion. While the move adds to recent management turnover, Cloudflare emphasized strong succession depth and improving sales productivity for seven consecutive quarters.
Earnings and Forecast Revisions
The analysts’ team now projects adjusted EPS of 91 cents for 2025, up from 84 cents previously, and $1.05 for 2026, compared with $1.02 earlier.
Revenue is expected to climb to $2.14 billion in 2025 and $2.72 billion in 2026, representing year-over-year growth of 28.3% and 26.8%, respectively.
JPMorgan's price forecast of $135 on Cloudflare is based on 18x EV/2026E revenue.
Price Action: NET shares were trading higher by 11.46% to $248.00 at last check Friday.
Read Next:
Photo by Piotr Swat via Shutterstock
