Company: NET
Filing Date: 2025-10-30
Form Type: 10-Q
Source: 0001477333-25-000141
Chunk: 17

Company: Cloudflare, Inc.
Filing Date: 2025-10-30
Form: 10-Q
Item: Part I, Item 2
Chunk 17
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, 2024. The increase in the cost of revenue was primarily due to an increase of $38.5 million in third-party technology services costs, an increase of $38.4 million in expenses related to operating in co-location facilities and network and bandwidth costs for operating our global network for our expanded customer base, as well as increased capacity to support our growth, an increase of $32.1 million in depreciation expense due to increase in server acquisitions and deployments, and an increase of $6.6 million related to the amortization of acquired developed technology and capitalized internal-use software costs. 

Gross margin decreased to 74% from 78%, and 75% from 78%, respectively, for the three and nine months ended September 30, 2025, compared to the three and nine months ended September 30, 2024. The decrease in gross margin was primarily due to the increases in costs mentioned above.

Operating Expenses

Sales and Marketing

Three Months EndedSeptember 30,ChangeNine Months EndedSeptember 30,Change20252024$%20252024$%(dollars in thousands)(dollars in thousands)Sales and marketing$236,309 $185,221 $51,088 28 %$669,679 $553,824 $115,855 21 %

Sales and marketing expenses increased by $51.1 million, or 28%, for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The increase was primarily driven by $35.8 million in increased employee-related costs due to a 22% increase in headcount in our sales and marketing organization, including an increase of $8.3 million in stock-based compensation expense. The remainder of the increase was primarily due to an increase of $3.8 million in expenses for marketing programs, investments in brand awareness advertising, third-party industry events, and digital performance marketing, an increase of $3.2 million in co-location and bandwidth expenses for free customers, and an increase of $1.9 million in allocated overhead costs.

Sales and marketing expenses increased by $115.9 million, or 21%, for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The increase was primarily driven by $77.7 million in increased employee-related costs due to a 22% increase in headcount in our sales and marketing organization, including an increase of $