How NET (Cloudflare) Makes Money in 2026: A Deep-Dive With Income Statement

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Understanding how a cloud security company like NET makes money is essential for investors and anyone interested in the business of cybersecurity. In this post, we break down NET's quarterly income statement (Q4 2025) using a Sankey chart to visualize the financial flows — what comes in, where it goes, and what's left as profit.

Quick NET Overview

NET operates as a cloud security platform provider, delivering comprehensive security services for applications and infrastructure in multi-cloud and hybrid environments. Revenue comes primarily from subscriptions via Direct Customers and Channel Partners. The company focuses on its core platform, with no major additional business segments reported.

Revenue Breakdown

• Total Revenue (Q4 2025): $614.5M (+33.6% YoY)
  • Direct Customers Revenue: $438.5M (71.4% of total, +22.3% YoY)
  • Channel Partners Revenue: $176.0M (28.6% of total, +73.6% YoY)
  • Growth is powered by expanding channel partnerships and steady direct sales momentum in the high-demand cloud security market.

Gross Profit and Margins

• Gross Profit: $452.6M (73.6% gross margin)
  • Cost of Revenue: $162.0M (+49.0% YoY)
  • NET maintains robust margins due to its scalable software-as-a-service model and efficient cloud infrastructure delivery.
• Most costs come from hosting, support, and related infrastructure expenses tied to revenue generation.

Operating Income and Expenses

• Operating Income: -$49.2M (calculated as Gross Profit minus Operating Expenses, operating margin not directly provided)
• Operating Expenses: $501.8M (+30.0% YoY)
  • R&D: $141.9M (+18.0% YoY, 23.1% of revenue) — focused on platform innovation, threat detection enhancements, and AI-driven security features
  • SG&A: $359.9M (+35.4% YoY, 58.6% of revenue) — driven by sales expansion, marketing for customer acquisition, and general administrative scaling
  • NET continues to prioritize innovation and invest in growth while expanding operations to capture market share in cloud security.

Net Income

• Pre-Tax Income: Not directly provided (inferred from flows leading to net)
• Income Tax: Not directly provided
• Net Income: $12.1M (-6.0% YoY, 2.0% net margin)
• NET converts a moderate portion of sales into profit due to high scalability offset by significant growth investments in R&D and sales.

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What Drives NET's Money Machine?

• Direct Customers Revenue: 71.4%+ of revenue, forming the stable core from enterprise subscriptions
• Channel Partners Growth: 73.6% YoY growth rate, accelerating overall revenue as partners amplify reach
• R&D Investment: Heavy focus on product development to maintain competitive edge in cybersecurity
• Future growth areas: Expanding channel ecosystem and international markets, though high operating expenses keep overall profitability modest

Visualizing NET's Financial Flows

The Sankey chart below visualizes how each dollar flows from gross revenue, through costs and expenses, down to net income. This helps investors spot where value is created, what areas weigh on profits, and how efficiently the company operates.

• Most revenue flows into gross profit, with operating expenses (especially SG&A) taking the largest chunk.
• Even after significant investments, 2.0% of revenue drops to the bottom line.

Key Takeaways

• NET's money comes overwhelmingly from Direct Customers and Channel Partners subscriptions
• High gross and net margins illustrate the power of NET's asset-light SaaS model
• Heavy investment in R&D and sales, balanced by efficiency in gross margins
• Ongoing growth is driven by channel partner acceleration and cloud security demand

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FAQ About NET's Income Statement

1. What is the main source of NET's revenue in 2025?

NET generates over 71% of its revenue from Direct Customers. Channel Partners contribute 28.6%, showing growing diversification.

2. How profitable is NET in Q4 2025?

NET reported net income of $12.1M in Q4 2025, with a net margin of approximately 2.0%, reflecting moderate profitability driven by strong gross margins amid heavy growth investments.

3. What are the largest expense categories for NET?

The biggest expenses on NET's income statement are operating expenses, particularly Research & Development (R&D) and Sales, General & Administrative (SG&A) costs. R&D investment reached $141.9M in Q4 2025, as NET prioritizes platform innovation and threat intelligence.

4. Why does the overall business operate with low net margins?

The company, despite generating $614.5M in revenue, posted a modest net income of $12.1M in Q4 2025. This is because NET aggressively invests in R&D and sales expansion, believing these will drive long-term growth—even if profitability is pressured today.

5. How does NET's effective tax rate compare to previous years?

NET's effective tax rate in Q4 2025 was not directly provided in the data. This moderate rate aligns with SaaS industry norms, influenced by factors like stock-based compensation and international operations.