Shares in internet tech company Cloudflare (NET) dipped over 20% on Friday despite the firm posting a strong Q1 earnings report. The stock traded as low as $194.36 on Friday, down 24.31%, after a steep one-day selloff. The fall reflects market concern over AI-led restructuring and softer near-term revenue guidance.
The tech giant’s projected revenue for the current quarter came in between $664 million and $665 million, below Wall Street’s $666.1 million estimate but up 34% from the same period last year. Additionally, adjusted earnings reached $0.25 per share, beating expectations of $0.23 per share. Cloudflare also improved profitability during the quarter. Adjusted operating income rose to $73.1 million, equal to 11.4% of revenue. Furthermore, free cash flow reached $84.1 million, representing 13% of total revenue.
Despite the good numbers, the reason why NET investors panicked on Friday was a newly announced wave of layoffs. Cloudflare announced plans to cut more than 1,100 jobs worldwide. The reduction equals about 20% of its global workforce. The company linked the move to its shift toward an agentic AI-first operating model. The move capped off a week of several top companies issuing layoffs, including crypto exchange Coinbase (COIN). Several companies in tech are now spending money on artificial intelligence tools, such as AI agents, to do tasks previously performed by workers. Hence, Wall Street is fearful of how this will impact future revenue.
Furthermore, the company expects restructuring charges between $140 million and $150 million. Most of those costs should appear in the second quarter, which could mean heavy capex going towards AI initiatives. Meanwhile, Cloudflare said account executives will remain outside the layoff plan.
Still, Cloudflare raised its full-year earnings forecast. The company now expects adjusted earnings of $1.19 to $1.20 per share. That range stands above Wall Street expectations of about $1.13 per share. Full-year revenue guidance also moved higher. Cloudflare expects 2026 revenue between $2.805 billion and $2.813 billion. Even so, the sharp stock decline showed that the layoff news outweighed the stronger annual outlook, causing concern for the near-term future of Cloudflare (NET) stock.