Cloudflare beats on Q4 earnings, reports record free cash flow

Yahoo Finance Live anchors discuss fourth-quarter earnings for Cloudflare.

Video transcript

BRAD SMITH: But let's also go to the cloud here on the day since we're already floating high this morning. Shares of Cloudflare are on cloud nine as well. Yeah, wow.

BRIAN SOZZI: Yeah, not coming back from that one, Brad.

BRAD SMITH: Yeah, I'm not.

[LAUGHTER]

4.5% higher-- just try to get through this read, man-- after topping estimates in its latest quarterly results as it delivers record operating profit, operating margin, and Free Cash Flow, FCF, in the fourth quarter, according to CEO Matthew Prince. There you're taking a look at some of the actuals versus the estimates. Was indeed a beat on top and bottom line there, and you're taking a look at those cash-flow numbers that we mentioned a moment ago.

BRIAN SOZZI: Yeah, two good numbers here for Cloudflare. Revenue growth up 42% year over year but then also the calendar year 2023 guidance for revenue up 37% year over year. Brent Thill over at Jefferies noting that kind of quieted investor fears that this economic slowdown was really significantly impacting new business for Cloudflare. So overall, Julie, I would argue this quarter kind of was in line what we heard from Matthew Prince back at Davos a couple weeks ago.

JULIE HYMAN: And it's also again in contrast to what we're hearing on enterprise spending writ large, right? So if you look in the conference call, Cloudflare really highlighted a number of large clients and large contracts that are still being signed. And what he told us in Davos is that security is still a priority, right?

So I think as this year goes on, what we're really going to see among big enterprises and software spending is the shakeout of that prioritization. Where are they willing to spend? Where are they wanting to cut back? And for now, it seems like security is somewhere they're still willing to spend.

BRAD SMITH: For just about every tech company that's reported over the past two, three weeks, I've been doing this Control-F for artificial intelligence or AI, and it was in this Cloudflare earnings call as well here. Demand for the company's AI-generated content, one of their core customers, exploded in terms of the demand for that content. Unprecedented rates of adoption.

And now here's the overlap because Cloudflare may be able to go out and market to some of the other Azure-based FrontDoor customers there and have some type of overlap in terms of the number of clients that they can serve, and that's going to continue to add on to some of the Remaining Performance Obligations, these RPOs that they talk about. That actually increased by about 9% sequentially, 45% year over year. So just keep a close eye on where AI continues to get mentioned in this earnings season but especially in the cloud security space, if you will, too.

JULIE HYMAN: Just one more comment also when it comes to spending and all of these buzzwords that we talk about. Just to pedal back what I was saying a little bit, the company is saying people are being more cautious with their spending. Sales cycles are longer. They're delaying some purchase decisions. But ultimately they're obviously making enough purchase decisions for Cloudflare to do OK.

BRAD SMITH: Absolutely. We're going to continue to watch all of these companies throughout the rest of today's trading activity, folks.