Confluent (NASDAQ:CFLT) Q1 Sales Beat Estimates, Stock Soars

Kayode Omotosho /
2023/05/03 4:11 pm EDT
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Data infrastructure software company, Confluent (NASDAQ:CFLT) reported Q1 FY2023 results that beat analyst expectations, with revenue up 38.2% year on year to $174.3 million. The company expects that next quarter's revenue would be around $182 million, which is the midpoint of the guidance range. That was roughly in line with analyst expectations. Confluent made a GAAP loss of $152.6 million, down on its loss of $113 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) Q1 FY2023 Highlights:

  • Revenue: $174.3 million vs analyst estimates of $167.4 million (4.13% beat)
  • EPS (non-GAAP): -$0.09 vs analyst estimates of -$0.14
  • Revenue guidance for Q2 2023 is $182 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year, at $762.5 million at the midpoint
  • Free cash flow was negative $82.9 million, compared to negative free cash flow of $30.9 million in previous quarter
  • Customers: 1,075 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 66.6%, up from 64% same quarter last year

“Confluent started fiscal year 2023 with a strong first quarter, beating all guided metrics and highlighted by 89% year-over-year growth in Confluent Cloud revenue,” 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 $77 million in Q1 FY2021, to $174.3 million.

Confluent Total Revenue

And unsurprisingly, this was another great quarter for Confluent with revenue up 38.2% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $5.64 million in Q1, compared to $16.9 million in Q4 2022. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Confluent is expecting revenue to grow 30.6% year on year to $182 million, slowing down from the 57.8% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 28.2% over the next twelve months.

In volatile times like these we look for robust businesses with strong pricing power. Unknown to most investors, this company is one of the highest-quality software companies in the world, and their software products have been the default standard in critical industries for decades. The result is an impressive business that is up an incredible 18,152% since the IPO. You can find it on our platform for free.

Large Customers Growth

You can see below that at the end of the quarter Confluent reported 1,075 enterprise customers paying more than $100,000 annually, an increase of 84 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 Q1 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 $6.06 billion and more than $1.85 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

It was good to see Confluent outperform Wall St’s revenue expectations this quarter. And we were also glad to see the acceleration in new contract wins. On the other hand, there was a deterioration in gross margin and cash burn increased. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 5.71% on the results and currently trades at $20.5 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.