Confluent (NASDAQ:CFLT) Exceeds Q4 Expectations But Quarterly Guidance Underwhelms

Kayode Omotosho /
2023/01/30 4:08 pm EST

Data infrastructure software company, Confluent (NASDAQ:CFLT) reported results ahead of analyst expectations in the Q4 FY2022 quarter, with revenue up 40.6% year on year to $168.6 million. The company expects that next quarter's revenue would be around $167 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Confluent made a GAAP loss of $105.8 million, improving on its loss of $114.4 million, in the same quarter last year.

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Confluent (CFLT) Q4 FY2022 Highlights:

  • Revenue: $168.6 million vs analyst estimates of $164.2 million (2.69% beat)
  • EPS (non-GAAP): -$0.09 vs analyst estimates of -$0.15
  • Revenue guidance for Q1 2023 is $167 million at the midpoint, below analyst estimates of $168.5 million
  • Management's revenue guidance for upcoming financial year 2023 is $762.5 million at the midpoint, in line with analyst estimates and predicting 30.1% growth (vs 52.5% in FY2022)
  • Free cash flow was negative $30.8 million, compared to negative free cash flow of $45.5 million in previous quarter
  • Customers: 991 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 68%, up from 61.9% same quarter last year

“Confluent helps power rich customer experiences, more intelligent and efficient backend operations, and unlock new data-driven business opportunities,” 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 exceptional over the last two years, growing from quarterly revenue of $70.3 million in Q4 FY2020, to $168.6 million.

Confluent Total Revenue

And unsurprisingly, this was another great quarter for Confluent with revenue up 40.6% year on year. On top of that, revenue increased $16.9 million quarter on quarter, a very strong improvement on the $12.3 million increase in Q3 2022, and a sign of acceleration of growth.

Guidance for the next quarter indicates Confluent is expecting revenue to grow 32.3% year on year to $167 million, slowing down from the 63.7% 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 $762.5 million at the midpoint, growing 30.1% compared to 51% increase in FY2022.

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Large Customers Growth

You can see below that at the end of the quarter Confluent reported 991 enterprise customers paying more than $100,000 annually, an increase of 70 on last quarter. That's in line with the number of contracts wins in the last quarter and quite a bit again above what we have typically seen over the last year, confirming the company is sustaining a good pace of sales.

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 $6.72 billion and more than $1.92 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were very impressed by the strong improvements in Confluent’s gross margin this 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 the revenue guidance for the next quarter missed analysts' expectations. Overall, this quarter's results could have been better. The company is flat on the results and currently trades at $23 per share.

Should you invest in Confluent 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.