Confluent (NASDAQ:CFLT) Beats Expectations in Strong Q4 But Stock Drops

Jabin Bastian /
2022/02/10 4:19 pm EST

Data infrastructure software company, Confluent (NASDAQ:CFLT) announced better-than-expected results in the Q4 FY2021 quarter, with revenue up 70.5% year on year to $119.9 million. On top of that, guidance for next quarter's revenue was surprisingly good, being $118 million at the midpoint, 6.28% above what analysts were expecting. Confluent made a GAAP loss of $114.4 million, down on its loss of $31.7 million, in the same quarter last year.

Is now the time to buy Confluent? Access our full analysis of the earnings results here, it's free.

Confluent (CFLT) Q4 FY2021 Highlights:

  • Revenue: $119.9 million vs analyst estimates of $109.7 million (9.22% beat)
  • EPS (non-GAAP): -$0.19 vs analyst estimates of -$0.21
  • Revenue guidance for Q1 2022 is $118 million at the midpoint, above analyst estimates of $111 million
  • Management's revenue guidance for upcoming financial year 2022 is $542 million at the midpoint, beating analyst estimates by 4.44% and predicting 39.7% growth (vs 63.1% in FY2021)
  • Free cash flow was negative $26.7 million, compared to negative free cash flow of $20.6 million in previous quarter
  • Customers: 734 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 61.5%, down from 70.2% same quarter last year

“To compete in the modern world, organizations must harness the power of data that constantly flows throughout their business,” said Jay Kreps, co-founder and CEO, Confluent.

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.

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 strong over the last year, growing from quarterly revenue of $70.3 million, to $119.9 million.

Confluent Total Revenue

This was another standout quarter with the revenue up a splendid 70.5% year on year. On top of that, revenue increased $17.3 million quarter on quarter, a very strong improvement on the $14.2 million increase in Q3 2021, and a sign of re-acceleration of growth, which is very nice to see indeed.

Guidance for the next quarter indicates Confluent is expecting revenue to grow 53.1% year on year to $118 million, in line with the 51.3% year-over-year increase in revenue the company had recorded in the same quarter last year. For the upcoming financial year management expects revenue to be $542 million at the midpoint, growing 39.7% compared to 63.1% increase in FY2021.

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Large Customers Growth

You can see below that at the end of the quarter Confluent reported 734 enterprise customers paying more than $100,000 annually, an increase of 70 on last quarter. That is quite a bit more contract wins than last quarter and quite a bit above what we have typically seen lately, demonstrating that the business itself has good sales momentum. We've no doubt shareholders will take this as an indication that the company's go-to-market strategy is working very well.

Confluent customers paying more than $100,000 annually

Key Takeaways from Confluent's Q4 Results

Since it has still been burning cash over the last twelve months it is worth keeping an eye on Confluent’s balance sheet, but we note that with a market capitalization of $19.8 billion and more than $2.01 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the very optimistic revenue guidance Confluent provided for the next quarter. And we were also excited to see the really strong revenue growth. On the other hand, the revenue guidance for next year indicates a significant slowdown and gross margin deteriorated. Overall, we think this was still a good quarter. But the market was likely expecting more and the company is down 8.43% on the results and currently trades at $67 per share.

Confluent may have had a good quarter, so should you invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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