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Confluent Inc Cl A(CFLT-Q)
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Confluent (NASDAQ:CFLT) Beats Q3 Sales Targets But Stock Drops 19.9%

StockStory - Wed Nov 1, 2023

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Data infrastructure software company, Confluent (NASDAQ:CFLT) reported Q3 FY2023 results exceeding Wall Street analysts' expectations, with revenue up 31.9% year on year to $200.2 million. However, next quarter's revenue guidance of $204.5 million was less impressive, coming in 3.67% below analysts' estimates. Turning to EPS, Confluent made a GAAP loss of $0.30 per share, improving from its loss of $0.41 per share in the same quarter last year.

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Confluent (CFLT) Q3 FY2023 Highlights:

  • Revenue: $200.2 million vs analyst estimates of $195.2 million (2.57% beat)
  • EPS (non-GAAP): $0.02 vs analyst estimates of -$0.01 ($0.03 beat)
  • Revenue Guidance for Q4 2023 is $204.5 million at the midpoint, below analyst estimates of $212.3 million
  • Free Cash Flow was -$13.1 million compared to -$35.2 million in the previous quarter
  • Customers: 1,185 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 71.8%, up from 65% in the same quarter last year

Started in 2014 by the team of engineers at LinkedIn who originally built it as an internal tool, Confluent (NASDAQ:CFLT) provides infrastructure software for organizations that makes it easy and fast to collect and move large amounts of data between different systems.

Data Infrastructure

Generating insights from system level data is an increasing priority for most businesses, but to do so requires connecting and analyzing piles of data stored and siloed in separate databases. This is the demand driver for cloud based data infrastructure software providers, who can more readily integrate, distribute and process information vs. legacy on-premise software providers.

Sales Growth

As you can see below, Confluent's revenue growth has been impressive over the last two years, growing from $102.6 million in Q3 FY2021 to $200.2 million this quarter.

Confluent Total Revenue

Unsurprisingly, this was another great quarter for Confluent with revenue up 31.9% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $10.9 million in Q3 compared to $15 million in Q2 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.

Next quarter's guidance suggests that Confluent is expecting revenue to grow 21.2% year on year to $204.5 million, slowing down from the 40.6% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 26.2% over the next 12 months before the earnings results announcement.

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Large Customers Growth

This quarter, Confluent reported 1,185 enterprise customers paying more than $100,000 annually, an increase of 41 from the previous quarter. That's a bit fewer contract wins than last quarter and quite a bit below what we've typically observed over the past four quarters, suggesting that its sales momentum with large customers is slowing.

Confluent customers paying more than $100,000 annually

Key Takeaways from Confluent's Q3 Results

Although Confluent, which has a market capitalization of $8.74 billion, has been burning cash over the last 12 months, its more than $1.87 billion in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

We enjoyed seeing Confluent materially improve its gross margin this quarter. We were also glad its revenue outperformed Wall Street's estimates. On the other hand, its revenue guidance for next quarter underwhelmed and its new large contract wins shrunk. Overall, this was a mediocre quarter for Confluent. The company is down 19.9% on the results and currently trades at $22.53 per share.

Confluent may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.

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The author has no position in any of the stocks mentioned in this report.