Cloudflare's net revenue retention re-accelerated to 119% in Q3 2025, which Sam Eden credits partly to Pool of Funds, a bundle letting large customers draw down across any product.
Cloudflare has fewer than 200 customers above $1m on over $2bn annualised revenue, versus almost 500 for Zscaler at a similar stage.
Sam Eden argues Cloudflare's roughly 25 times next-twelve-month revenue valuation assumes flawless execution in its Act 2 zero trust catch-up and AI inference scale.
Cloudflare's one network is a moat, but the price demands flawless execution
Cloudflare turned internet security and delivery into a self-serve product by routing all traffic through one global network. That network feeds a loop of data, security and peering leverage, and now carries three product lines. The investment question is whether enterprise sales, partners, zero trust catch-up and AI inference can justify a price that assumes flawless execution.
Takeaways
Cloudflare's single proxy network created a reinforcing moat. Routing all traffic through one reverse proxy on commodity hardware lets customers switch services on without sales engineers. More traffic gives more data and better security, which draws paying customers and improves peering leverage, with direct links to over 13,000 networks.
Three product acts share one network. Act 1 is web security and performance, roughly two-thirds of revenue. Act 2 is corporate zero trust on a forward proxy, about 30% and the highest incremental gross margin. Act 3 is the Workers developer platform, with over 3m developers.
Enterprise go-to-market shift is accelerating large customers. After letting much of the sales team go in 2023, Cloudflare hired Mark Anderson in 2024 and moved to enterprise reps. Customers above $100,000 are under 1.5% of the base but about 75% of revenue.
Pool of Funds lifted retention and contract size. The 2024 bundle lets large customers draw down across any product, including a $130m five-year deal. Net revenue retention dipped to 112% then reached 119% in Q3 2025, and remaining performance obligations grew about 40%.
Zero trust is the hardest fight and biggest upside. Cloudflare is a second mover in Act 2 against Zscaler, which has incumbent trust with large enterprises. Cloudflare has fewer than 200 customers above $1m at a $2bn run rate, versus almost 500 for Zscaler.
Channel partners are an underused growth lever. Tom Evans, formerly of Palo Alto Networks, runs partnerships. Channel-led growth is about 65% a year, yet partners are only about 30% of revenue, compared with close to 90% at Zscaler and Netskope.
Valuation assumes flawless execution. At about 25 times forward revenue, the price depends on Act 2 catching up and AI inference scaling. Free cash flow margins are near 10% against a guided 25%, and inference GPUs are a concentrated return risk.
How Cloudflare began
Matthew Prince and Lee Holloway built Project Honey Pot, an anti-spam project whose list of bad email addresses improved as users grew.
Prince, a former lawyer who chose Harvard Business School over his family business, met Michelle Zatlyn there, now COO.
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On this episode 2
Show 1
Cloudflare was founded in 2009 by Prince, Zatlyn and Holloway, who wrote much of the early code and is no longer with the company.
Before Cloudflare, CDNs like Akamai and reverse proxy vendors needed sales engineers and firewalls, so mainly large enterprises used them.
Cloudflare let anyone sign up quickly, becoming the first real product-led growth company for internet services, with early customers including non-profits and hackers.