Cloudflare announced it is joining other tech giants like Meta, Microsoft, and Google in reporting both increased revenue and significant layoffs, citing AI as a driving factor. The internet security and performance service provider revealed it would cut approximately 20% of its workforce, or about 1,100 employees, during its first quarter 2026 earnings report. This marks the first large-scale layoff in the company’s 16-year history, according to CEO Matthew Prince.
The layoffs were announced as Cloudflare shared record quarterly revenues of $639.8 million, a 34% year-over-year increase, alongside a loss of $62.0 million compared to a $53.2 million loss in the same quarter last year. Despite the losses, revenue growth indicates strong performance, with $2.5 billion in remaining performance obligations, reflecting a 34% increase from the previous year.
Prince and COO Michelle Zatlyn emphasized that the layoffs are not cost-cutting measures but a shift towards AI-enabled operations. Since implementing AI more aggressively, Cloudflare reports significant productivity increases across teams, positioning AI as a critical asset for future growth.
The company’s internal use of AI has surged by over 600% recently, with its R&D team using AI tools extensively. AI has driven productivity to such levels that fewer support staff are needed. However, Cloudflare plans to continue hiring, expecting a larger workforce in 2027 than in 2026, as employees embracing AI become more productive.
Despite layoffs, Cloudflare’s strategy aligns with industry trends where AI advancements justify workforce reductions amidst rising revenues, raising questions about true structural changes or cost-cutting measures. Prince suggests a continuous pursuit of improvement, stating, “Just because you’re fit doesn’t mean you can’t get fitter.”