Shares in Cloudflare Inc. plunged nearly 25% in late trading after the content delivery network company issued a lower-than-expected outlook amid broader macroeconomic uncertainty in the economy.

For its first quarter ended March 31, Cloudflare reported earnings before costs such as stock compensation of eight cents per share, up from a penny a share in the first quarter of 2022. Revenue rose 37% from a year ago, to $290.2 million. Earnings were a beat, with analysts having expected three cents, while revenue was slightly under an expected $290.8 million.

Operating cash flow came in at $36.4 million compared to negative $35.5 million in the same quarter of last year and free cash flow of $13.9 million, up from negative $64.4 million. Cloudflare had $1.715 billion in cash, cash equivalents and securities on hand as of the end of March.

Highlights in the quarter included Cloudflare expanding its relationship with Microsoft Corp. in January to help customers deploy, automate and enhance their organization’s zero-trust security. The new integrations between Cloudflare and Microsoft allow customers to deploy zero-trust security tools in minutes with no complex code changes.

In February, Cloudflare unveiled “Wildebeest,” a Mastodon-compatible server built entirely atop the company’s Supercloud, enabling anyone to own and operate their own instance in the social network. Mastodon is a decentralized social network mostly used by people who don’t like the modern incarnation of Twitter Inc. or its owner Elon Musk

“In the first quarter, we grew revenue 37% year-over-year to $290.2 million, delivered the third consecutive quarter of record operating profit and margin and significantly outperformed on free cash flow,” Matthew Prince, co-founder and chief executive officer of Cloudflare, said in the company’s earnings release.

The figures to this point are mostly fine, a small miss on the revenue aside, but then came Cloudflare’s outlook, which was preceded by Cloudflare Chief Financial Officer Thomas Seifert warning of troubled days ahead.

“Increasing macroeconomic uncertainty over the course of the first quarter resulted in a material lengthening of sales cycles and a significant backend-weighting of linearity,” Seifert said. “Despite the continued reacceleration of our new pipeline generation and our sustained high win rates and renewal rates during the first quarter, our guidance assumes these external headwinds will persist through the end of the fiscal year.”

For the second quarter of 2023, Cloudflare expects adjusted earnings per share of seven to eight cents on revenue of $305 million to $306 million. Analysts were expecting earnings per share of three cents on revenue of $319 million. For the full year, Cloudflare expects earnings per share of 34 to 35 cents on revenue of $1.28 billion to $1.284 billion versus an expected 16 cents and $1.33 billion.

The revenue misses in the company’s outlook, combined with Seifert’s words about macroeconomic uncertainty and lengthening sales cycles, did not please investors. As a result, Cloudflare’s stock plunged nearly 25% after the bell.

Image: Cloudflare