Cloudflare, Inc. (NET) Cash Flow Statement

The persistent gap between net income and operating cash flow is driven primarily by stock-based compensation, which totaled $274.1M in 2026Q2, nearly matching operating cash flow. This suggests that reported losses understate the company's cash-generating ability, but also that a significant portion of cash flow is non-recurring or tied to equity issuance. Investors should monitor whether SBC growth outpaces cash generation, as it may indicate dilution rather than operational efficiency.

The trajectory shows a clear upward trend in FCF margins, from single digits in early 2024 to over 20% in 2026Q2, driven by accelerating revenue growth and improving cash collections. However, the 2026Q2 FCF of $140.5M was supported by a $275.9M operating cash flow, which includes large SBC add-backs; excluding SBC, FCF would be negative. This implies that the reported FCF may overstate sustainable cash generation, and investors should adjust for SBC when assessing the company's ability to self-fund.

The doubling of capex intensity suggests Cloudflare is in a growth capex phase, likely expanding its edge network and data centers to handle increased traffic from AI workloads. While this may pressure near-term FCF, it could position the company to capture long-term demand. However, the rising capex, combined with declining gross margins, indicates that the cost of supporting growth is increasing, and investors should monitor whether this investment yields proportional revenue growth.

The consistent negative working capital changes, except for a positive $47.9M in 2025Q4, indicate that as revenue grows, cash is tied up in operating assets. This may reflect longer collection cycles or prepaid expenses related to network capacity. While the drag is modest relative to operating cash flow, it could intensify if growth accelerates, potentially offsetting some of the cash generation from earnings.

The appearance of acquisition spending and buybacks in 2026Q2, after several quarters of none, suggests management is becoming more confident in its cash position and growth prospects. The $75.1M acquisition outlay may indicate a strategic move to bolster AI capabilities, while the buyback could be an attempt to offset dilution from SBC. However, given the company's net losses and reliance on SBC, these deployments may strain liquidity if not offset by operating cash flow.