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

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Understanding how a cloud infrastructure and cybersecurity provider like NET Income Statement Overview makes money is essential for investors and anyone interested in the business of digital infrastructure. 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 global cloud platform providing security, performance, and reliability services for internet applications and networks. Revenue comes primarily from subscription-based services sold directly to enterprise customers and through channel partners. The business is structured around direct customer relationships and a growing partner ecosystem, with a focus on recurring, high-margin SaaS offerings.

Revenue Breakdown

• Total Revenue (Q3 2025): $430.1M (+0.0% YoY)
  • Direct Customers Revenue: $412.2M (95.8% of total, +20.8% YoY)
  • Channel Partners Revenue: $149.9M (34.8% of total, +68.6% YoY)
  • Other Revenue by Type: -$131.9M (adjustments and other items)
  • Growth is powered by expansion in enterprise customer adoption and rapid scaling of channel partnerships.

Gross Profit and Margins

• Gross Profit: $334.1M (77.7% gross margin)
  • Cost of Revenue: $96.0M (+0.0% YoY)
  • NET maintains robust margins due to its scalable digital business model and operational efficiencies in delivering cloud-based services.
• Most costs come from infrastructure operations, bandwidth, and support for global data centers.

Operating Income and Expenses

• Operating Income: Not reported (operating expenses exceed gross profit in Q3 2025)
• Operating Expenses: $364.9M (+0.0% YoY)
  • R&D: $110.9M (+0.0% YoY, 25.8% of revenue) — focused on platform innovation, security features, and network expansion
  • SG&A: $254.0M (+0.0% YoY, 59.1% of revenue) — includes sales, marketing, and administrative costs to drive customer acquisition and support
  • NET continues to prioritize innovation and invest in growth while maintaining efficiency in scaling its operations.

Net Income

• Pre-Tax Income: Not reported
• Income Tax: Not reported
• Net Income: $15.3M (+0.0% YoY, 3.6% net margin)
• NET converts a moderate portion of sales into profit due to its high gross margins and disciplined cost management, despite heavy investment in R&D and SG&A.

What Drives NET's Money Machine?

• Direct Customers: 95.8% of revenue comes from direct enterprise customers, reflecting the strength of NET's core SaaS business.
• Customer Growth: Direct customer revenue grew 20.8% YoY, while channel partner revenue surged 68.6% YoY, highlighting successful go-to-market strategies.
• R&D Investment: $110.9M (25.8% of revenue) invested in platform innovation, security, and new product development.
• Future Growth Areas: Channel partnerships and new security offerings are expanding rapidly, though not yet the primary profit drivers.

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 SG&A, 3.6% of revenue drops to the bottom line.

Key Takeaways

• NET's money comes overwhelmingly from direct enterprise customers via recurring SaaS subscriptions.
• High gross and net margins illustrate the power of NET's scalable, digital-first business model.
• Heavy investment in R&D and sales, balanced by efficiency in infrastructure operations.
• Ongoing growth is driven by enterprise adoption and rapid expansion of channel partnerships.

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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 95% of its revenue from direct enterprise customers through recurring SaaS subscriptions. Channel partner revenue is also growing rapidly, contributing nearly 35% of total revenue.

2. How profitable is NET in Q3 2025?

NET reported net income of $15.3M in Q3 2025, with a net margin of approximately 3.6%, reflecting moderate profitability driven by high gross margins and disciplined cost control.

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 $110.9M (25.8% of revenue) and Sales, General & Administrative (SG&A) at $254.0M (59.1% of revenue). R&D investment is focused on platform innovation and security.

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

Channel Partners Revenue, despite generating $149.9M in revenue, is offset by significant investments in go-to-market expansion and support, resulting in an operating loss for this segment in Q3 2025. NET believes these investments 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 in Q3 2025 was not reported, but historically, the company has benefited from tax credits related to share-based compensation and international structuring, resulting in a moderate effective tax rate.