Cloudflare's stock tumbled more than 20% on Thursday after the company revealed plans to cut 1,100 jobs. The layoff announcement overshadowed a strong first-quarter earnings report that beat analyst expectations and showed revenue growth of 34%.
Job cuts overshadow strong earnings
The market's reaction was immediate and brutal. Shares of the web infrastructure and security company closed down roughly 21% on the day, wiping out billions in market value. The selloff came even as Cloudflare reported Q1 results that topped estimates on both the top and bottom lines.
Revenue for the quarter came in at $378.5 million, up 34% from the same period last year. The company also posted a narrower-than-expected loss. But none of that seemed to matter to investors, who focused instead on the workforce reduction.
Why the market turned against Cloudflare
Layoff announcements often spook investors, especially when they come from a company that's still growing rapidly. Cloudflare's decision to cut roughly 10% of its workforce raised questions about underlying business health. While the company didn't specify the reasons for the cuts in its earnings release, the stock price action suggested that traders viewed the move as a sign of trouble rather than a strategic pivot.
The 1,100 job cuts represent one of the largest layoffs in the company's history. Cloudflare had been on a hiring spree in recent years, so the reduction marks a sharp reversal in direction.
Revenue growth of 34% in Q1
Despite the stock's plunge, Cloudflare's underlying business metrics remain strong. Revenue growth accelerated to 34% year-over-year, up from 30% in the prior quarter. The company also reported that its customer base continued to expand, with the number of large customers paying more than $100,000 annually increasing by 22%.
Cloudflare's net loss per share narrowed to $0.01 from $0.05 a year ago, beating the $0.03 loss analysts had expected. The company's gross margin improved to 79.5% from 77.8% in the same period last year.
The positive earnings report made the selloff even more puzzling to some. But in volatile markets, sentiment can shift quickly—and the job-cut news clearly outweighed the financial beats.
Cloudflare's stock closed at $85.35, down from $108.10 the previous day. The company's shares are now down roughly 10% year-to-date.
