Company: NET
Filing Date: 2025-07-31
Form Type: 10-Q
Source: 0001477333-25-000137
Chunk: 17

Company: Cloudflare, Inc.
Filing Date: 2025-07-31
Form: 10-Q
Item: Part I, Item 2
Chunk 17
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 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 $21.8 million of third-party technology services costs, and an increase of $19.7 million in depreciation expense due to increase in server acquisitions and deployments. 

Gross margin decreased to 75% from 78%, for the three and six months ended June 30, 2025, compared to the three and six months ended June 30, 2024. The decrease in gross margin was primarily driven by an increase in depreciation expense and an increase in allocated cost due to higher network traffic volume by our paying customers.

Operating Expenses

Sales and Marketing

Three Months EndedJune 30,ChangeSix Months EndedJune 30,Change20252024$%20252024$%(dollars in thousands)(dollars in thousands)Sales and marketing$219,359 $174,501 $44,858 26 %$433,370 $368,603 $64,767 18 %

Sales and marketing expenses increased by $44.9 million, or 26%, for the three months ended June 30, 2025 compared to the three months ended June 30, 2024. The increase was primarily driven by $33.8 million in increased employee-related costs due to an 24% increase in headcount in our sales and marketing organization, including an increase of $10.6 million in stock-based compensation expense. The remainder of the increase was primarily due to an increase of $3.6 million in colocation and bandwidth expenses for free customers.

Sales and marketing expenses increased by $64.8 million, or 18%, for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The increase was primarily driven by $41.9 million in increased employee-related costs due to an 24% increase in headcount in our sales and marketing organization, including an increase of $17.8 million in stock-based compensation expense. The remainder of the increase was primarily due to an increase of $4.7 million in colocation and bandwidth expenses for free customers, an increase of $4.3 million in consulting expenses, an increase of $4.2 million in travel-related expenses, and an increase of $2.4 million in expenses for marketing programs due to acquisitions, investments in brand awareness advertising, third-party industry events, and digital performance marketing.

Research and