On Thursday, Cloudflare announced it was joining a growing number of tech companies, such as Meta, Microsoft, and Amazon, in reporting both increased revenue and significant layoffs. These changes are linked to the adoption of AI technologies.
The company, known for providing internet security and performance services to millions of websites globally, revealed it would be reducing its workforce by around 20%, amounting to 1,100 employees. This announcement was part of its first-quarter 2026 earnings report released on Thursday.
“We’ve never done something like this in Cloudflare’s history,” stated co-founder and CEO Matthew Prince during a quarterly conference call on Thursday, marking the first major layoff in the company’s 16-year history. According to CFO Thomas Seifert, the layoffs will affect all teams and regions, except for salespeople with revenue quotas.
The news of the layoffs coincided with the company reporting $639.8 million in quarterly revenues, a 34% increase from the previous year and the highest in the company’s history. Despite the revenue growth, Cloudflare also reported a loss of $62.0 million, compared to a $53.2 million loss the previous year.
This growing loss, despite rising revenue, highlights a common challenge for Cloudflare: rapid growth without consistent profitability. However, the loss was a smaller percentage of revenue, and the quarter featured several other positive indicators. For example, Cloudflare reported over $2.5 billion in remaining performance obligations, reflecting a 34% year-over-year growth. This metric indicates revenue under contract but not yet delivered.
Prince emphasized that the 20% workforce reduction was not aimed at cost reduction but was due to the company’s use of AI.
“Today’s actions are not a cost-cutting exercise or an assessment of individuals’ performance; they are about Cloudflare defining how a world-class, high-growth company operates and creates value in the agentic AI era,” wrote Prince and Cloudflare co-founder and COO Michelle Zatlyn in a related blog post about the layoffs.
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Prince noted during the call that although Cloudflare has been selling AI-powered products, it initially hesitated to adopt AI internally.
“Internally, the tipping point was last November. At that point, across our teams, we began to see massive productivity gains, team members that were two, 10, even 100 times more productive than they had been before. It was like going from a manual to an electric screwdriver,” he explained.
He added, “Cloudflare’s usage of AI has increased by more than 600% in the last three months alone.”
Prince highlighted that nearly the entire R&D team now utilizes the company’s Workers platform—a tool for developers to build and run software on Cloudflare’s global network. This includes a feature called vibe coding. He also mentioned that all the code produced and deployed in Cloudflare’s products is now reviewed by autonomous AI agents.
However, AI is not limited to developers. “Employees across the company, from engineering to HR to finance to marketing, run thousands of AI agent sessions each day to get their work done,” he said.
As a result, these highly efficient, AI-empowered employees require fewer support staff, Prince argued.
“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,” he stated.
Interestingly, Prince mentioned that Cloudflare would continue hiring and investing in personnel, noting that those who embrace AI tools are significantly more productive than before. He speculated, “I would guess that in 2027 we’ll have more employees than we did at any point in 2026.”
Cloudflare concluded its first quarter with a headcount of approximately 5,500 before the layoffs.
The trend Prince described—using AI advancements as a rationale for workforce cuts even during times of strong revenue growth—is becoming increasingly common in the tech sector. Whether this represents a genuine structural shift or serves as a convenient excuse for cost control is something investors and employees will continue to debate.
When an analyst questioned the necessity of such deep cuts after a successful quarter, Prince responded, “Just because you’re fit doesn’t mean you can’t get fitter.”
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