Cloudflare joins the 'we found ways to run our kit for longer' club

Finds modest savings, but isn't modest about ability to land big customers or sell AI

Cloudflare has joined the ranks of hyperscalers that have delayed replacement of their hardware, telling investors it's found a way to operate its infrastructure for five years instead of four.

"With the evolution of the composition of our infrastructure, we undertook an assessment of the useful lives of our service and network equipment," CFO Thomas Seifert told investors on Thursday during Cloudflare's Q4 earnings call. "In January 2024, we determined that continuous advancements in hardware technology and improvements in our datacenter designs have increased the efficiency in how we operate our equipment, resulting in the estimated useful lives of these assets extending from four to five years starting in fiscal 2024."

This earnings season, The Register has reported on similar decisions to elongate hardware lifespans at Alphabet and AWS, both of which expect to put billions onto their bottom lines by reducing depreciation costs.

Cloudflare expects a far more modest impact – just $20 million.

The biz sees far greater impact from having hired Marc Boroditsky as its chief revenue officer 15 months ago.

"At the time, we had enterprise customers, but we hadn't operationalized repeatedly and consistently landing them," admitted co-founder and CEO Matthew Prince. "Mark changed all that. He's brought in the process and discipline we needed to be world-class in sales the same way we already were in product and engineering."

The changes Boroditsky wrought helped Cloudflare to its best-ever quarter for net new large customers, and to sign its biggest new customer and largest-ever contract renewal. Prince said investors can expect more of the same in future, adding that the business is set up for sustained growth.

Prince observed that "These days, no earnings conference would be complete without an update on AI."

His version of that update revealed that as of the end of 2023 Cloudflare had deployed GPUs in 120 cities globally – ahead of a target to install the accelerators in 100 locations.

"By the end of 2024, we plan to have inference tuned GPUs deployed in nearly every city that makes up Cloudflare's global network and within milliseconds of nearly every device connected to the internet worldwide" he added.

Customers are already biting. "From our launch in September to the month of December, the average number of daily workers AI requests increased 9x," Prince revealed (workers is Cloudflare's serverless workload platform). More than a third of accounts using workers AI are new users of workers, leading Prince to opine "workers AI is not just a significant opportunity in and of itself, but also a potential accelerant to adoption of the workers overall platform." Prince teased short-term announcements of more workers AI news, and also told investors he's pleased with the level of interest in the Cloudflare's "Vectorize" vector database as it also has a role in running AI applications.

Cloudflare landed $362.5 million of revenue in Q4 – a 32 percent year-over-year jump. Full year revenue reached $1,296.7 million, up 33 percent year-over-year. Net income was in the red for the quarter and the year.

Network capital expenditure represented eight percent of Q4 revenue, and execs predicted that will rise to between ten and twelve percent across FY2024. With revenue forecast at $1,648 to $1,652 million, Cloudflare is about to buy quite a lot of kit.

"The machine that underlies Cloudflare is firing efficiently on all cylinders," Prince concluded.

Markets liked what they heard: Cloudflare shares jumped almost ten percent in after hours trading. ®

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