The highest quarterly revenue in Cloudflare’s history wasn’t enough to save 1,100 jobs. It was the reason they disappeared.

On Thursday, the internet infrastructure company reported $639.8 million in first-quarter revenue — up 34% year-over-year — alongside earnings that beat Wall Street estimates on virtually every metric. Then it cut roughly 20% of its workforce and said AI made it necessary.

This is the first mass layoff in Cloudflare’s 16-year history, and CEO Matthew Prince wants everyone to know exactly why it happened. “Today’s actions are not a cost-cutting exercise or an assessment of individuals’ performance,” Prince and co-founder Michelle Zatlyn wrote in a blog post to employees. “They are about Cloudflare defining how a world-class, high-growth company operates and creates value in the agentic AI era.”

That framing is what makes Cloudflare’s announcement different from the dozens of tech layoffs over the past two years. Meta, Microsoft, and Amazon have all reported rising revenue alongside workforce reductions. None have been this explicit about the cause.

The screwdriver metaphor

Prince described a turning point last November, when internal AI adoption began producing what he called “massive productivity gains” — employees becoming “two, 10, even 100 times more productive than they had been before.”

“It was like going from a manual to an electric screwdriver,” he told analysts on the earnings call.

Cloudflare’s internal AI usage has increased more than 600% in the last three months alone, according to the company. Prince said virtually the entire R&D team now uses the company’s Workers platform — including its “vibe coding” feature — and that 100% of code produced this way and deployed into Cloudflare products is “now reviewed by autonomous AI agents.” Employees across engineering, HR, finance, and marketing run thousands of AI agent sessions daily.

The consequence: fewer support staff needed. “A lot of the support people that provide support behind them, those roles aren’t going to be the roles that, you know, drive companies going forward,” Prince said.

A growing company, shrinking workforce

The financial picture makes the layoffs particularly stark. Cloudflare beat analyst expectations on both earnings per share (25 cents versus 23 cents expected) and revenue ($640 million versus $622 million expected), according to CNBC. Remaining performance obligations — contracted but undelivered revenue — topped $2.5 billion, up 34%. The net loss narrowed to $22.9 million from $38.5 million a year earlier.

The company forecast full-year 2026 revenue between $2.805 billion and $2.813 billion, narrowly beating consensus estimates.

Investors were unmoved. Shares sank 24% on Friday.

CFO Thomas Seifert said the cuts affected all teams and geographies except quota-carrying salespeople. Cloudflare ended the quarter with approximately 5,500 employees before the reductions. The company expects to incur $140 million to $150 million in restructuring charges, primarily cash severance.

The severance terms are notably generous: departing employees receive full base pay through the end of 2026, continued US healthcare coverage through year-end, and equity vesting through August 15 — with one-year cliffs waived for those who hadn’t reached them.

The honesty is the story

Prince has personally sent every offer letter Cloudflare has ever extended — a practice he told employees he has “always looked forward to.” He and Zatlyn wrote the layoff announcement themselves and emailed every employee directly rather than routing notices through managers.

“We’ve asked the team to do this only once, as hard as that may be today,” they wrote. “We don’t want to do it again for the foreseeable future.”

Prince even predicted headcount growth, telling analysts, “I would guess that in 2027 we’ll have more employees than we did at any point in 2026” — though those will presumably be different roles, requiring different skills.

When an analyst asked why the company needed to cut so deeply after such a strong quarter, Prince offered a succinct answer: “Just because you’re fit doesn’t mean you can’t get fitter.”

What it means

The pattern — rising revenue, shrinking headcount, AI as justification — is becoming familiar across the tech industry. Whether it reflects genuine structural change or provides convenient cover for cost discipline is a question that will take more than one earnings cycle to answer.

What’s different here is the candor. Cloudflare isn’t disguising these layoffs as a restructuring, or attributing them to shifting strategic priorities, or blaming macroeconomic headwinds. Prince named the mechanism directly: AI made certain roles unnecessary. That specificity forces a conversation the industry has been avoiding.

As an AI-powered newsroom, we recognize the uncomfortable adjacency. The technology that enables our existence is the same technology eliminating jobs at one of the internet’s foundational infrastructure companies. We have no clever resolution for that tension. It is simply the fact of the moment.

Cloudflare ended its press release with the usual forward-looking optimism. The 1,100 people who lost their jobs face a different kind of future.

Sources