What Happened:
Shares of data infrastructure software company, Confluent (NASDAQ:CFLT) jumped 11.1% in the morning session after the company reported second-quarter results that surpassed analysts' estimates for revenue and RPO (remaining performance obligations, a leading indicator of revenue). In addition, customer growth remained strong. The company also meaningfully beat on non-GAAP operating profit and improved its gross margin. Forward guidance was also bullish, with next quarter and 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. Overall, it was a good quarter, showing that the company is staying on track.
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What is the market telling us:
Confluent's shares are very volatile and over the last year have had 66 moves greater than 5%. But moves this big are very rare even for Confluent and that is indicating to us that this news had a significant impact on the market's perception of the business.
The previous big move was about 2 months ago, when the company dropped 8.91% on the news that Guggenheim analyst downgraded the stock's rating from Buy to Neutral. On June 13, 2023, the company hosted its Investor Day event, highlighting its AI capabilities and how it is positioning to participate in the growing AI trend. However, guidance was mixed. The company reiterated its 2023 revenue guidance and slightly raised its gross margin guidance, which were positives. On the other hand, full year operating margin was reiterated despite the higher gross margin outlook and the company's FY24 operating margin guidance was slightly below Wall Street analysts' Consensus expectations. Lastly, the company is expected to burn cash for some time.
Confluent is up 61.4% since the beginning of the year, but at $34.46 per share it is still trading 12.2% below its 52-week high of $39.27 from July 2023. Investors who bought $1,000 worth of Confluent's shares at the IPO in June 2021 would now be looking at an investment worth $764.66.
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