How NET (Cloudflare) Makes Money in 2025: A Deep-Dive With Income Statement

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Understanding how a cloud networking and cybersecurity leader like NET Income Statement Overview makes money is essential for investors and anyone interested in the business of cloud infrastructure and security services. In this post, we break down NET's quarterly income statement (Q3 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 Income Statement Overview operates a cloud-based platform that delivers secure networking, performance optimization, and cybersecurity solutions to enterprises and developers. Revenue comes primarily from subscription-based services delivered to direct customers and channel partners. The business is segmented into Direct Customers Revenue and Channel Partners Revenue, reflecting its dual go-to-market strategy.

Revenue Breakdown

• Total Revenue (Q3 2025): $562.0M (+30.7% YoY)
  • Direct Customers Revenue: $412.2M (73.3% of total)
  • Channel Partners Revenue: $149.9M (26.7% of total)
  • Growth is powered by expanding enterprise adoption, increased demand for cloud security, and strong partner channel momentum.

Gross Profit and Margins

• Gross Profit: $415.7M (74.0% gross margin)
  • Cost of Revenue: $146.3M (+52.5% YoY)
  • NET maintains robust margins due to its scalable digital business model and efficient cloud infrastructure.
• Most costs come from network operations, infrastructure investments, and support services.

Operating Income and Expenses

• Operating Income: Not reported for Q3 2025 (operating expenses exceed gross profit, indicating an operating loss)
• Operating Expenses: $453.2M (+24.2% YoY)
  • R&D: $121.0M (+9.1% YoY, 21.5% of revenue) — Focused on platform innovation, security enhancements, and new product development
  • SG&A: $332.2M (+30.8% YoY, 59.1% of revenue) — Includes sales, marketing, and administrative costs to support global expansion
  • NET continues to prioritize innovation and invest in growth while expanding operations and maintaining cost discipline.

Net Income

• Pre-Tax Income: Not reported for Q3 2025
• Income Tax: Not reported for Q3 2025
• Net Income: $1.29M (-91.6% YoY, 0.2% net margin)
• NET converts a modest portion of sales into profit due to aggressive investment in growth and innovation.

What Drives NET's Money Machine?

• Direct Customers Revenue: 73.3% of revenue — recurring subscriptions from enterprise clients
• Channel Partners Expansion: Channel revenue grew 68.6% YoY, reflecting strong partner ecosystem growth
• R&D Investment: $121.0M in Q3 2025, fueling new product launches and platform enhancements
• Future Growth Areas: Expansion into AI-driven security and edge computing, though these segments are not yet profitable

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 in R&D and sales infrastructure, only 0.2% of revenue drops to the bottom line.

Key Takeaways

• NET's money comes overwhelmingly from subscription-based cloud services to direct customers
• High gross margins 74% illustrate the power of NET's scalable cloud business model
• Heavy investment in R&D and SG&A, balanced by operational efficiency
• Ongoing growth is driven by enterprise adoption, channel expansion, and innovation in cybersecurity

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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 73% of its revenue from direct customer subscriptions. Channel partners contribute the remaining 27%, with channel revenue growing rapidly.

2. How profitable is NET in Q3 2025?

NET reported net income of $1.29M in Q3 2025, with a net margin of approximately 0.2%, reflecting modest profitability driven by high gross margins but offset by substantial operating expenses.

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) at $121.0M and Sales, General & Administrative (SG&A) at $332.2M in Q3 2025, as NET prioritizes innovation and global expansion.

4. Why does Channel Partners Revenue operate at a loss?

Channel Partners Revenue, despite generating $149.9M in revenue, posted an operating loss in Q3 2025. This is because NET aggressively invests in partner enablement, sales infrastructure, and market development, believing these will drive long-term growth—even if the division is unprofitable today.

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

NET's effective tax rate for Q3 2025 was not reported. Historically, NET's tax rate has been moderate, often influenced by share-based compensation and international structuring.