The internet infrastructure and cybersecurity firm Cloudflare is slashing over 20% of its workforce, which will affect around 1,100 employees globally as it restructures its business to focus on the quick adoption of artificial intelligence. Layoffs come despite better-than-expected earnings in the first quarter.
The decision was not caused by poor business conditions or any temporary pressures on costs or employee performance, the company said. Instead, Cloudflare has claimed that agentic AI has ‘fundamentally changed’ the way teams work.
The company plans to incur $140 million to $150 million in severance costs in the second quarter.
The job reduction was part of a larger transition of how Cloudflare wants to operate in an AI-first world, CEO Matthew Prince said. “This wasn’t an easy decision, but it’s the right decision.”
The revenue growth was record-breaking, free cash flow was strong and the company added an “unprecedented number of customers around the world,” he said in another op-ed published in the Wall Street Journal. “I didn't do it because Cloudflare is struggling. I did it because business is changing and to win the future, Cloudflare needs to change with it.”
Over the last three months, the company claims that its AI usage has grown by over sixfold. The company's transformation was called an “agentic AI-first operating model” by Prince.
The cuts were made just after Cloudflare released first-quarter numbers that exceeded Wall Street estimates. It generated revenues of $639.8 million, which beat analyst estimates of $621.9 million. Adjusted profit was also higher than forecast at 25 cents a share.
But the restructuring plan attracted investors' interest as Cloudflare's second-quarter revenue came slightly below estimates.
The company explained that the cuts were not only about the number of employees but also about the redesign of the teams for the future.
Prince divided business into three categories: builders, sellers and measurers. He noted that the role of the builder and seller will always be important, but roles that involve “measurers” like internal audit, finance, legal, compliance, middle management, operations and a portion of marketing will be more impacted by AI.
AI now helps Cloudflare to continuously audit risks, close books quicker, minimize errors and more accurately measure business performance.
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This shift by Cloudflare follows other tech firms in restructuring and embracing AI and efficiency. Meta is reportedly preparing to cut 8,000 jobs in the US, and Cognizant confirmed that it will be laying off over 15,000 workers.