TLDR
- Confluent (CFLT) stock dropped 27% after reporting Q2 earnings that beat revenue and EPS estimates
- Revenue grew 20% year-over-year to $282.3 million, beating consensus estimates of $278.4 million
- Confluent Cloud growth slowed to 28%, marking first time below 30% growth for the segment
- Company raised only the low-end of full-year guidance, disappointing investors expecting stronger outlook
- Stock down 5% year-to-date despite recent recovery following Q1 results
Confluent stock took a beating in after-hours trading Wednesday, falling 27% to $19.29 despite the data streaming company delivering second-quarter results that topped Wall Street expectations. The harsh market reaction suggests investors wanted more convincing growth metrics from the AI-adjacent software firm.
The company reported adjusted earnings of 9 cents per share for the June-ended quarter, beating analyst estimates of 8 cents. Revenue climbed 20% year-over-year to $282.3 million, surpassing the consensus estimate of $278.4 million.
Subscription revenue, which makes up the bulk of Confluent’s business, rose 26% to $270.8 million. This figure also beat estimates of $267.6 million. Services revenue contributed $11.45 million, up 11.4% from the prior year.
Cloud Growth Hits Speed Bump
The real concern for investors appears centered on Confluent Cloud performance. Revenue from the cloud offering grew 28% to $150.52 million, marking the first time in company history that this segment’s growth dipped below 30%.
Barclays analyst Raimo Lenschow pointed to this metric as a key disappointment. The slower cloud growth rate raises questions about the company’s ability to capitalize on the shift toward cloud-based data streaming solutions.
Confluent’s remaining performance obligations (RPO) came in at $1.16 billion, beating the average estimate of $1.04 billion. This metric represents future contracted revenue and provides visibility into the company’s pipeline.
The platform business showed mixed results. License revenue reached $30.63 million, beating estimates of $28.44 million. Professional and customer success (PCS) revenue was $89.68 million, just shy of the $89.89 million estimate.
Guidance Fails to Impress
For the current quarter, Confluent guided subscription revenue to $281.5 million at the midpoint. This forecast roughly matches analyst expectations but failed to provide the upside surprise investors were hoping for.
The company raised only the low-end of its full-year guidance. Lenschow noted this cautious approach follows Confluent’s decision to lower fiscal-year guidance after Q1 results.
“This quarter only the low-end of guidance was raised a little, which will likely not be seen as a sign of strength,” Lenschow wrote in a research note.
The analyst suggested that while shares had recovered well following the Q1 report, the current results may not provide enough momentum to drive further gains in the near term.
Confluent stock has struggled this year, down 5% heading into the earnings report. The shares are up about 9% compared to 12 months ago, underperforming many other software stocks.
The company’s IBD Composite Rating stands at 68 out of 99, combining five proprietary metrics into a single score. Top-performing growth stocks typically score 90 or higher on this measure.
Confluent’s data streaming platform serves as infrastructure for companies managing real-time data flows. The 10-year-old company has attracted attention as an AI play, with clients including OpenAI using its software to move and process data.
The earnings beat marks Confluent’s second consecutive quarter of outperforming EPS estimates. The 12.5% earnings surprise and 1.63% revenue surprise demonstrate the company’s ability to execute operationally, even as growth rates show signs of moderating.
Stay Ahead of the Market with Benzinga Pro!
Want to trade like a pro? Benzinga Pro gives you the edge you need in today's fast-paced markets. Get real-time news, exclusive insights, and powerful tools trusted by professional traders:
- Breaking market-moving stories before they hit mainstream media
- Live audio squawk for hands-free market updates
- Advanced stock scanner to spot promising trades
- Expert trade ideas and on-demand support
