Cloudflare shares dropped 18% in after-hours trading on May 7, 2026, following the company's announcement of a significant workforce reduction and its first-quarter earnings report. The company revealed it will cut over 1,100 employees globally, representing a 20% reduction in its workforce, citing the transformative impact of agentic artificial intelligence on its operations. CEO Matthew Prince stated that AI has 'fundamentally changed' the company's work, with AI usage increasing over 600% in the past three months as Cloudflare shifts to an 'agentic AI-first operating model' [1].
Despite the layoffs, Cloudflare reported first-quarter earnings that surpassed analyst expectations, posting earnings per share of 25 cents versus the expected 23 cents, and revenue of $640 million compared to the anticipated $622 million. This marks a 34% year-over-year increase in revenue. The company provided second-quarter revenue guidance of $664 million to $665 million, in line with analyst expectations, and projected full-year 2026 revenue between $2.805 billion and $2.813 billion, slightly above estimates of $2.8 billion. Full-year earnings are expected to be between $1.19 and $1.20 per share, beating the $1.14 consensus estimate [1].
Cloudflare posted a net loss of $22.93 million, or 7 cents per share, for the first quarter, an improvement from the prior year's net loss of $38.45 million, or 11 cents per share. CEO Matthew Prince described the growth of AI as the company's 'biggest tailwind in history' and emphasized that the workforce changes are necessary to align with future needs, stating, 'This wasn't an easy decision, but it's the right decision' [1].
The market reacted negatively to the news of the workforce reduction, with shares falling sharply despite the earnings beat and positive forward guidance. The company’s embrace of AI and the resulting operational changes are seen as pivotal for its future, but the immediate impact on employees and investor sentiment was significant [1].
CONCLUSION
Cloudflare's decision to cut 20% of its workforce, driven by rapid AI adoption, overshadowed its strong earnings and positive guidance, resulting in an 18% share price drop. The market's reaction highlights concerns about the disruptive impact of AI on jobs, even as the company positions itself for future growth. Investors will be watching closely to see if Cloudflare's AI-first strategy delivers the anticipated long-term benefits.