Confluent (NASDAQ:CFLT) Surprises With Strong Q1 But Stock Drops

Jabin Bastian /
2022/05/05 4:35 pm EDT

Data infrastructure software company, Confluent (NASDAQ:CFLT) announced better-than-expected results in the Q1 FY2022 quarter, with revenue up 63.7% year on year to $126.1 million. Guidance for next quarter's revenue was $131 million at the midpoint, 2.82% above the average of analyst estimates. Confluent made a GAAP loss of $112.9 million, down on its loss of $44.5 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 FY2022 Highlights:

  • Revenue: $126.1 million vs analyst estimates of $118.4 million (6.45% beat)
  • EPS (non-GAAP): -$0.19 vs analyst estimates of -$0.21
  • Revenue guidance for Q2 2022 is $131 million at the midpoint, above analyst estimates of $127.3 million
  • The company lifted revenue guidance for the full year, from $542 million to $557 million at the midpoint, a 2.76% increase
  • Free cash flow was negative $58.4 million, compared to negative free cash flow of $26.7 million in previous quarter
  • Customers: 791 customers paying more than $100,000 annually
  • Gross Margin (GAAP): 63.7%, down from 69% same quarter last year

“Data streaming is gaining momentum and adoption as a foundational component to delivering real-time customer experiences and optimized operations,” 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 incredible over the last year, growing from quarterly revenue of $77 million, to $126.1 million.

Confluent Total Revenue

This was another standout quarter with the revenue up a splendid 63.7% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $6.21 million in Q1, compared to $17.3 million in Q4 2021. 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 48.2% year on year to $131 million, slowing down from the 64% 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 35.8% over the next twelve months.

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Large Customers Growth

You can see below that at the end of the quarter Confluent reported 791 enterprise customers paying more than $100,000 annually, an increase of 57 on last quarter. That is a bit less contract wins than last quarter but about the same as what we have typically seen over the last year, suggesting that the company still has decent sales momentum, even if this was a weaker quarter.

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 $9.3 billion and more than $1.99 billion in cash, the company has the capacity to continue to prioritise growth over profitability.

We were impressed by the exceptional revenue growth Confluent delivered this quarter. And we were also excited to see that it outperformed Wall St’s revenue expectations. On the other hand, there was a slight slowdown in new contract wins. Overall, we think this was a really good quarter, that should leave manly shareholders feeling positive. But the market was likely expecting more and the company is down 7.93% on the results and currently trades at $26 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.