Jefferies has reiterated its Hold rating on Cloudflare following a mixed third-quarter update that showed accelerating revenue growth but also margin strain and a senior leadership departure. Cloudflare’s revenue rose 31% year-on-year to $562 million — its strongest beat in nearly four years — powered by large enterprise adoption and momentum in its Workers developer platform. The brokerage said improving sales execution and a broadening product suite support Cloudflare’s target of hitting $3 billion in annualized revenue by late 2026.
However, Jefferies flagged valuation as a concern, noting the stock trades at roughly 33x estimated 2026 revenue, a premium that leaves “limited near-term upside.” The firm also pointed to margin pressure, with gross margin slipping to 75% from 76% in the prior quarter due to higher onboarding costs and the growing contribution from the lower-margin Workers offering. Non-GAAP operating margin came in at 15.3%, above consensus but still short of longer-term ambitions.
Cloudflare also confirmed the exit of CJ Desai, president of product and engineering, who is moving to a CEO role at another public company. Jefferies called the departure a “setback” given Desai’s impact on enterprise momentum, but expects the company to appoint an external successor soon. Despite near-term valuation constraints, Jefferies highlighted strong sales productivity, expanding partner contributions and free cash flow of $72 million, or a 13% margin, saying Cloudflare remains well-positioned to benefit from rising AI and cybersecurity spending.
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