Cloudflare (NYSE: NET), a leading cloud services provider, announced a sweeping reduction of its global workforce, cutting approximately 20%, or over 1,100 employees, as part of a strategic pivot to an AI-driven operating model.
The layoffs, detailed by CEO Matthew Prince and CFO Michelle Zatlyn, are not tied to individual performance but reflect a broader reimagining of internal processes and roles to align with the ‘agentic AI era.’ Cloudflare’s internal AI usage has surged by over 600% in the past three months, with employees across departments running thousands of AI agent sessions daily. This rapid integration has prompted a fundamental restructuring to enhance value delivery and maintain the company’s mission of building a better internet.
Financially, the workforce reduction comes with significant costs. Cloudflare anticipates incurring charges of $140.0 to $150.0 million, including $105.0 to $110.0 million in cash for severance, notice periods, and benefits, alongside $35.0 to $40.0 million in non-cash expenses for vesting share-based awards. Most of these costs are expected to hit in the second quarter of fiscal 2026, with the restructuring largely completed by the end of the third quarter.
For departing employees, Cloudflare has committed to industry-leading severance packages. These include full base pay through the end of 2026, continued healthcare support in the U.S. through the year’s end, and equity vesting extended to August 15, 2026, even for those who haven’t reached one-year cliffs.
The founders framed this as a decisive, one-time action to avoid prolonged uncertainty. “We’re making these changes now because making smaller, repeated cuts or dragging a reorganization out over multiple quarters stalls our ability to build,” they stated in a company blog post.
This move positions Cloudflare to accelerate innovation as a digitally native leader, building on its history of outpacing competitors slowed by outdated systems. The company aims to emerge faster and more agile from this transition.
The company also forecasted second-quarter revenue of $664.0 to $665.0 million, falling short of Wall Street’s expectation of $665.3 million, sending shares down more than 13% in extended trading.
Cloudflare’s stock reaction underscores investor concerns, with the 13% drop reflecting unease over both the revenue miss and the scale of the layoffs. The restructuring charges, peaking at $150.0 million, will weigh on near-term financials as the company navigates this pivotal shift.
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