【AI Layoff Wave】Cloudflare shares drop over 24% after earnings; AI agents replacing humans, layoffs exceed 1,100 people

After Cloudflare, a network infrastructure and cybersecurity company (NYSE: NET), released its first-quarter results, its share price plunged sharply. During Friday’s trading, it fell more than 24%, hitting a low of $192.60.

Cloudflare’s first-quarter revenue grew 34% year over year to $639.8 million, exceeding market expectations of $623 million. Adjusted earnings per share were $0.25, also above the market forecast of $0.23. However, the company expects second-quarter revenue guidance with an upper limit of $665 million, slightly below market expectations.

Shifting to an AI agent operating model — about 20% layoffs

At the same time, Cloudflare announced a shift to an “AI agent–centered operating model,” cutting more than 1,100 employees—about 20% of its global workforce. The company said that as AI and agent tools become a core part of employees’ work, Cloudflare’s way of working has fundamentally changed, so it needs to redesign its corporate structure.

Chief Executive Officer Matthew Prince said during the earnings call that these layoffs were a difficult decision, but the company is redesigning internal processes, with operations across engineering, finance, and sales all organized around AI agent tools. He emphasized that the move is not aimed at cutting costs, nor is it an assessment of individual employees’ performance; rather, it is meant to redefine how the company operates and creates value in the era of AI agents. The company added that internal AI usage has increased by more than 600% over the past three months, and 97% of members of the R&D team have used AI coding tools.

Cloudflare expects restructuring and layoff-related expenses to range from $140 million to $150 million, with most to be recorded in the second quarter. The restructuring plan is expected to be largely completed by the end of the third quarter. Earnings-call materials show that this round of layoffs affects different functions and regions.

Gross margin under pressure — large customers still growing

Meanwhile, Cloudflare’s GAAP gross margin for the first quarter fell from 75.9% in the same period last year to 71.2%; non-GAAP gross margin declined from 77.1% to 72.8%. The drop in gross margin has also drawn market attention. The company said the decline is related to the mix of paid and free traffic, as well as an increased proportion of developer platform usage.

The company’s growth among large customers remains strong. The number of customers with annual payments exceeding $100,000 rose to 4,416, up 25% year over year, contributing 72% of the company’s revenue.

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