Cloudflare Lays Off Over 1,100 Employees; Earnings Beat Expectations but Stock Plunges 18% After Hours
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Cloudflare Lays Off Over 1,100 Employees; Earnings Beat Expectations but Stock Plunges 18% After Hours
For the remaining employees and those who were laid off, this “tailwind” is blowing in opposite directions.
Navigating Web3 tides with focused insightsAuthor: Claude, TechFlow
TechFlow Intro: On the same day Cloudflare announced better-than-expected quarterly results, it also announced plans to cut approximately 20% of its workforce—over 1,100 employees. CEO Matthew Prince characterized the move as a comprehensive restructuring for the “AI agent era,” not a cost-cutting measure. The company’s AI usage surged over 600% in the past three months, and 97% of its engineers are already using AI-powered coding tools. Following the announcement, Cloudflare’s stock plunged more than 14% after hours, with estimated restructuring costs ranging from $140 million to $150 million.
Cloudflare, the cybersecurity and cloud services giant, accomplished two major things on May 7: delivering a strongly beat quarterly earnings report—and announcing it would lay off one-fifth of its global workforce.
According to Cloudflare’s official blog, CEO Matthew Prince and President & COO Michelle Zatlyn sent an internal email to all employees that day announcing the elimination of over 1,100 positions worldwide. The email’s subject line was “Building for the Future.” Hours after sending the layoff notice, the company released its Q1 2026 financial results.
Prince remarked during the subsequent earnings call: “We’ve identified roles at Cloudflare that simply won’t be needed in our future. Just because you’re in good shape doesn’t mean you can’t get stronger.”
Better-Than-Expected Results, Yet Stock Plunges
Cloudflare reported Q1 revenue of $639.8 million, up 34% year-on-year—roughly 3 percentage points above Wall Street’s consensus estimate of $620.9 million. Adjusted EPS came in at $0.25, surpassing analysts’ expectations of $0.23. Non-GAAP operating profit stood at $73.1 million, yielding an operating margin of 11.4%. Free cash flow totaled $84.1 million.
The company also raised its full-year guidance: It now expects 2026 revenue of $2.805–$2.813 billion (up from the prior range of $2.785–$2.795 billion) and adjusted EPS of $1.19–$1.20 (up from $1.11–$1.12), both exceeding market consensus.
Yet investors appeared far more focused on the layoffs and slightly below-consensus guidance for Q2. Cloudflare forecast Q2 revenue of $664–$665 million—narrowly below analysts’ estimate of $665.34 million. According to CNBC, Cloudflare’s stock fell over 18% after hours, hitting a low near $212. As of end-2025, the company employed 5,156 full-time staff.
Restructuring for the “AI Agent Era”: 600% Usage Surge, Roles Radically Redefined
The rationale for layoffs provided by Prince and Zatlyn in their internal memo was not poor performance—but rather AI’s fundamental transformation of how the company operates.
The memo stated that Cloudflare’s AI usage had grown over 600% in the past three months. Employees across departments—including engineering, HR, finance, and marketing—now run thousands of AI agent conversations daily to complete tasks. According to Prism News, 97% of Cloudflare’s engineers are already using AI-powered coding tools.
Prince elaborated further on the earnings call: “Over the past six months, productivity gains for those directly engaging with customers and writing code have been extraordinary. Meanwhile, many of the supporting roles behind them will no longer drive our future growth.”
He projected that Cloudflare’s total headcount in 2027 would exceed any point in 2026—but emphasized that “the composition of roles is undergoing dramatic change, and you must take dramatic action to accelerate that shift.” He stressed this was not about cutting costs, but about “putting the right people in the right roles.”
Per Cloudflare’s SEC filing, the restructuring is expected to incur $140–$150 million in charges: $105–$110 million in cash expenses (including severance, notice periods, and benefits), and $35–$40 million in non-cash equity-related charges—primarily concentrated in Q2 and Q3.
Severance Package: Salary Through Year-End, Equity Vesting Extended to August
Cloudflare offered relatively generous severance terms. Affected employees will receive full base salary through the end of 2026. U.S. employees’ health insurance coverage will likewise continue through year-end. Equity vesting will be extended to August 15. For employees who haven’t yet reached their one-year cliff, the company will waive restrictions and prorate vesting through August.
In their memo, Prince and Zatlyn expressed hope that this round of layoffs would be executed only once: “Small, repeated layoffs—or drawn-out restructurings spanning multiple quarters—only create sustained emotional uncertainty for employees and slow down our ability to build.”
Last Year’s High-Profile Intern Hiring Drive: 1,111 Interns, Now 1,100 Layoffs
According to Cloudflare’s official blog, in September 2025—during its birthday week—the company publicly announced plans to hire up to 1,111 interns in 2026, a number inspired by its flagship public DNS resolver, 1.1.1.1. That post described the initiative as reflecting the company’s culture of “long-term investment in talent.”
Less than eight months later, Cloudflare laid off nearly the same number of full-time employees. Per Prism News, this contrast triggered widespread discussion on social media.
AI-Driven Layoffs Spread: Coinbase, PayPal Announce Large-Scale Cuts Same Week
Cloudflare is not alone. According to Yahoo Finance, Coinbase announced plans to cut ~14% of its workforce (~700 people) the same week, while PayPal reportedly prepared for layoffs affecting ~20% of its staff. From January through April 2026, U.S. tech firms announced 85,411 job cuts—a 33% increase year-on-year.
Citing AI as justification for layoffs has become a collective narrative across the tech industry. The Register headlined its coverage “Jobs just aren’t AI enough.” On the earnings call, Prince called AI “the biggest tailwind Cloudflare has ever seen.”
For those staying and those departing, however, this “tailwind” is blowing in opposite directions.
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