Why Confluent (CFLT) Shares Are Falling Today

What Happened:

Shares of data infrastructure software company, Confluent (NASDAQ:CFLT) fell 14.9% in the afternoon session after the company reported second quarter earnings results. However, Confluent stopped providing guidance, which sometimes drives skepticism in the market. In addition, management called out slower than expected growth in consumption among some digital native customers. On the other hand, its revenue outperformed Wall Street's estimates during the quarter. Overall, this was a mixed but weaker quarter for the company.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks. Is now the time to buy Confluent? Access our full analysis report here, it's free.

What is the market telling us:

Confluent's shares are very volatile and over the last year have had 28 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 biggest move we wrote about over the last year was 6 months ago, when the stock gained 30.4% on the news that the company reported fourth-quarter results, which beat analysts' revenue expectations and turned free cash flow positive for the first time. Its full-year revenue guidance came in higher than Wall Street's estimates. While revenue guidance for next year suggests a slowdown in growth, that was mostly expected. Lastly, the company noted that the transition to a pure consumption-based (gives customers more flexibility as they only pay for what they use) business model is almost done. As a result, the company will only provide subscription revenue guidance moving forward. Zooming out, this was still a very good quarter, showing that the company is staying on track.

Confluent is down 7.7% since the beginning of the year, and at $20.97 per share it is trading 41.8% below its 52-week high of $36.06 from August 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 $465.57.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.