Confluent (NASDAQ:CFLT) Q2: Beats On Revenue, Stock Jumps 11.2%

Anthony Lee /
2023/08/02 4:37 pm EDT

Data infrastructure software company, Confluent (NASDAQ:CFLT) reported Q2 FY2023 results beating Wall Street analysts' expectations, with revenue up 35.8% year on year to $189.3 million. The company also expects next quarter's revenue to be around $194.5 million, roughly in line with analysts' estimates. Confluent made a GAAP loss of $103.4 million, improving from its loss of $117.6 million in the same quarter last year.

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Confluent (CFLT) Q2 FY2023 Highlights:

  • Revenue: $189.3 million vs analyst estimates of $182.4 million (3.75% beat)
  • EPS (non-GAAP): $0 vs analyst estimates of -$0.06 ($0.06 beat)
  • Revenue Guidance for Q3 2023 is $194.5 million at the midpoint, roughly in line with what analysts were expecting
  • The company reconfirmed revenue guidance for the full year of $769.5 million at the midpoint
  • Free Cash Flow was -$35.2 million compared to -$82.9 million in the previous quarter
  • Customers: 1,144 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 69.4%, up from 64.6% in the same quarter last year

“Data streaming is a mission critical component of the modern data stack,” 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 over the last two years, growing from $88.3 million in Q2 FY2021 to $189.3 million this quarter.

Confluent Total Revenue

Unsurprisingly, this was another great quarter for Confluent with revenue up 35.8% year on year. On top of that, its revenue increased $15 million quarter on quarter, a very strong improvement from the $5.64 million increase in Q1 2023. This is a sign of acceleration of growth and great to see.

Next quarter's guidance suggests that Confluent is expecting revenue to grow 28.2% year on year to $194.5 million, slowing down from the 47.9% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 26.2% over the next 12 months.

The pandemic fundamentally changed several consumer habits. There is a founder-led company that is massively benefiting from this shift. The business has grown astonishingly fast, with 40%+ free cash flow margins. Its fundamentals are undoubtedly best-in-class. Still, the total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.

Large Customers Growth

This quarter, Confluent reported 1,144 enterprise customers paying more than $100,000 annually, an increase of 69 from the previous quarter. That's a bit fewer contract wins than last quarter but quite a bit above what we've typically seen over the last 12 months, suggesting that its sales momentum is healthy but softening after a tough comp quarter from last year.

Confluent customers paying more than $100,000 annually

Key Takeaways from Confluent's Q2 Results

Although Confluent, which has a market capitalization of $9.83 billion, has been burning cash over the last 12 months, its more than $1.85 billion in cash on hand gives it the flexibility to continue prioritizing growth over profitability.

We enjoyed seeing Confluent beat on quarterly revenue as well as RPO (remaining performance obligations, a leading indicator of revenue). The company also meaningfully beat on non-GAAP operating profit and improved its gross margin this quarter. Forward guidance was also bullish, with next quarter and the the full year non-GAAP operating profit guidance particularly impressive vs. Wall Street expectations. On the other hand, there was a slight slowdown in new large contract wins. Zooming out, we think this was still a good quarter, showing that the company is staying on track. The stock is up 11.2% after reporting and currently trades at $34.48 per share.

So should you invest in Confluent 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.