Confluent (CFLT)

Data streaming platform provider Confluent (NASDAQ:CFLT) reported Q4 CY2025 results exceeding the market’s revenue expectations, with sales up 20.5% year on year to $314.8 million. Its non-GAAP profit of $0.12 per share was 21.1% above analysts’ consensus estimates.

Company Overview

Built by the original creators of Apache Kafka, the popular open-source messaging system, Confluent (NASDAQ:CFLT) provides a data infrastructure platform that enables organizations to connect their applications, systems, and data layers around real-time data streams.

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.

Confluent competes with cloud provider services like Amazon Managed Streaming for Apache Kafka, Microsoft's Azure Event Hubs, and Google Cloud Pub/Sub. On-premises competitors include Cloudera Dataflow, TIBCO Messaging, and Red Hat AMQ Streams.

Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Luckily, Confluent’s sales grew at an exceptional 37.6% compounded annual growth rate over the last five years. Its growth beat the average software company and shows its offerings resonate with customers, a helpful starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within software, a half-decade historical view may miss recent innovations or disruptive industry trends. Confluent’s annualized revenue growth of 22.5% over the last two years is below its five-year trend, but we still think the results suggest healthy demand.

This quarter, Confluent reported robust year-on-year revenue growth of 20.5%, and its $314.8 million of revenue topped Wall Street estimates by 2.2%.

Looking ahead, sell-side analysts expect revenue to grow 15.8% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is above average for the sector and implies the market is forecasting some success for its newer products and services.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Confluent’s billings punched in at $338.2 million in Q4, and over the last four quarters, its growth was fantastic as it averaged 24.2% year-on-year increases. This alternate topline metric grew faster than total sales, meaning the company collects cash upfront and then recognizes the revenue over the length of its contracts - a boost for its liquidity and future revenue prospects.

This quarter, Confluent reported 1,521 enterprise customers paying more than $100,000 annually, an increase of 34 from the previous quarter. That’s a bit fewer contract wins than last quarter and quite a bit below what we’ve observed over the previous year, suggesting its sales momentum with new enterprise customers is slowing. It also implies that Confluent will likely need to upsell its existing large customers or move down market to accelerate its top-line growth.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Confluent does a decent job acquiring new customers, and its CAC payback period checked in at 45.8 months this quarter. The company’s relatively fast recovery of its customer acquisition costs gives it the option to accelerate growth by increasing its sales and marketing investments.

What makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

Confluent’s gross margin is better than the broader software industry and signals it has solid unit economics and competitive products. As you can see below, it averaged a decent 74.3% gross margin over the last year. That means for every $100 in revenue, roughly $74.30 was left to spend on selling, marketing, and R&D.

The market not only cares about gross margin levels but also how they change over time because expansion creates firepower for profitability and free cash generation. Confluent has seen gross margins improve by 3.9 percentage points over the last 2 year, which is very good in the software space.

Confluent’s gross profit margin came in at 74.7% this quarter, in line with the same quarter last year. Zooming out, Confluent’s full-year margin has been trending up over the past 12 months, increasing by 1 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as servers).

Many software businesses adjust their profits for stock-based compensation (SBC), but we prioritize GAAP operating margin because SBC is a real expense used to attract and retain engineering and sales talent. This is one of the best measures of profitability because it shows how much money a company takes home after developing, marketing, and selling its products.

Confluent’s expensive cost structure has contributed to an average operating margin of negative 32.6% over the last year. This happened because the company spent loads of money to capture market share. As seen in its fast revenue growth, the aggressive strategy has paid off so far, and Wall Street’s estimates suggest the party will continue. We tend to agree and believe the business has a good chance of reaching profitability upon scale.

Over the last two years, Confluent’s expanding sales gave it operating leverage as its margin rose by 10.9 percentage points. Still, it will take much more for the company to reach long-term profitability.

Confluent’s operating margin was negative 31.5% this quarter.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Confluent has shown poor cash profitability over the last year, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 3.3%, lousy for a software business.

Confluent’s free cash flow clocked in at $35.52 million in Q4, equivalent to a 11.3% margin. This cash profitability was in line with the comparable period last year and above its one-year average.

Over the next year, analysts predict Confluent’s cash conversion will improve. Their consensus estimates imply its free cash flow margin of 3.3% for the last 12 months will increase to 9%, it options for capital deployment (investments, share buybacks, etc.).

Companies with more cash than debt have lower bankruptcy risk.

Confluent is a well-capitalized company with $2.05 billion of cash and $1.11 billion of debt on its balance sheet. This $948.6 million net cash position is 8.7% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

It was encouraging to see Confluent beat analysts’ revenue expectations this quarter. The company also beat adjusted operating profit and adjusted EPS estimates. Overall, this was a solid quarter. The stock remained flat at $30.43 immediately following the results.

As announced on December 8, 2025, Confluent and International Business Machines Corporation (“IBM”) (NYSE: IBM) have entered into a definitive agreement under which IBM will acquire Confluent for $31.00 per share in cash, representing an enterprise value of $11 billion. The transaction is expected to close by the middle of 2026, subject to approval by Confluent shareholders, regulatory approvals, and other customary closing conditions.

Updated: February 11, 2026 at 9:18 PM EST

Before making an investment decision, investors should account for Confluent’s business fundamentals and valuation in addition to what happened in the latest quarter.

There are definitely a lot of things to like about Confluent. To kick things off, its revenue growth was exceptional over the last five years. And while its operating margins reveal poor profitability compared to other software companies, its gross margin suggests it can generate sustainable profits. On top of that, its products are easy to integrate into existing workflows.

Confluent’s price-to-sales ratio based on the next 12 months is 7.8x. When scanning the software space, Confluent trades at a fair valuation. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $30.89 on the company (compared to the current share price of $30.48).