Confluent Q3 2024 Earnings Analysis
Dive into $CFLT Confluent’s Q3 2024 earnings with review of financial performance, key metrics, operating expenses, dilution, customer growth, future outlook
Financial Results:
↗️$250.2M rev (+25.0% YoY, +24.2% LQ) beat est by 2.2%
↗️GM* (79.3%, +2.9 PPs YoY)🟢
↗️Operating Margin* (6.3%, +11.8 PPs YoY)🟢
↗️FCF Margin (3.7%, +10.3 PPs YoY)🟢
↗️EPS* $0.10 beat est by 100.0%🟢
*non-GAAP
Key Metrics
➡️DBNR 117% (118% LQ)
➡️RPO $883.00M (+7.2% YoY)🟡
↗️Billings $276M (+40.9% YoY)🟢
Customers
➡️1,346 $100k+ customers (+13.6% YoY, +40)
Operating expenses
↘️S&M*/Revenue 41.7% (-5.5 PPs YoY)
↘️R&D*/Revenue 21.8% (-2.6 PPs YoY)
↘️G&A*/Revenue 9.5% (-0.7 PPs YoY)
Quarterly Performance Highlights
↗️Net New ARR $61M (+38.4% YoY)
↗️CAC* Payback Period 24.8 Months (-8.8 YoY)🟢
↗️R&D* Index (RDI) 1.00 (-0.12 YoY)🟡
Dilution
↘️SBC/rev 41%, -3.9 PPs QoQ
↘️Basic shares up 6.7% YoY, -0.5 PPs QoQ🔴
↘️Diluted shares up 1.9% YoY, -2.5 PPs QoQ
Guidance
↘️Q4'24 $245.0 - $246.0M guide (+21.1% YoY) missed est by -0.4%🔴
↗️$916.5 - $917.5M FY guide (+18.3% YoY) raised by 0.8% beat est by 0.3%
Key points from Confluent’s Third Quarter 2024 Earnings Call:
Financial Performance Highlights
Confluent reported a 25% year-over-year increase in Q3 2024 total revenue, reaching $250 million and surpassing the $1 billion annualized revenue mark. Subscription revenue grew by 27% to $240 million, representing 96% of total revenue and exceeding prior guidance. Gross margin set a record, with total gross margin at 79% and subscription gross margin at 82.2%. The company expanded its non-GAAP operating margin by 12 percentage points to 6.3%, while free cash flow margin rose to a record 3.7%, reinforcing Confluent’s financial strength.
Product Portfolio Expansion for Real-Time Data Needs
Confluent advanced its real-time data capabilities through enhancements like Apache Flink for continuous stream processing. This addition addresses the increasing demand for real-time data applications across key industries such as e-commerce and telecommunications. Confluent's Data Streaming Platform (DSP) offerings, particularly Flink, continue to drive value and adoption among its larger customers, showcasing the impact of its evolving product suite.
Broadening Deployment with WarpStream
With the acquisition of WarpStream, Confluent introduced a Bring-Your-Own-Cloud (BYOC) deployment model, expanding its options beyond fully managed and self-managed services. WarpStream’s zero-disk architecture, built on object storage, offers secure, cost-efficient auto-scaling capabilities, appealing particularly to high-volume customers who require deployment flexibility without increased operational costs.
Generative AI and AI-Driven Use Cases
Confluent is positioning itself at the convergence of real-time data and AI by enabling AI model inference on its platform, empowering customers to leverage real-time data streams in AI and machine learning pipelines. This includes applications such as customer chatbots, fraud detection, and personalized customer experiences. In line with this, Confluent launched the Confluent for Startups AI Accelerator program with AWS and MongoDB, which supports early-stage AI firms with essential tools and credits. OpenAI’s expansion of its Confluent usage further emphasizes the growing role of real-time data streaming in supporting advanced AI applications.
Enhanced Streaming Capabilities and Flexible Pricing Models
Confluent’s platform saw further advancements, including additional connectors, new pricing models, and enterprise-grade cluster types to meet diverse customer needs. Innovations like Freight Clusters offer cost-sensitive solutions for high-throughput workloads, underscoring Confluent’s commitment to optimizing cost-to-performance ratios across industries.
Cloud Revenue Growth
Confluent Cloud continued as a primary growth driver, with revenue up 42% year-over-year to $130 million, now comprising 54% of subscription revenue. The cloud-first approach, combined with a focus on consumption-based models, propelled customer acquisition with 240 net new customers added in Q3, bringing the total customer count to 5,680. Confluent Cloud’s appeal among enterprises adopting cloud solutions positions it as a key revenue growth engine.
Key Customer Wins and Sector Expansion
Confluent added 240 new customers in Q3, marking a 16% increase year-over-year. Among these were 40 customers with ARR over $100,000 and 7 surpassing $1 million ARR. Key sectors, including financial services, retail, and telecommunications, have embraced Confluent’s data streaming solutions to drive real-time analytics and digital transformation.
Strategic Strength in Financial Services
Confluent’s strength in financial services continues, with its platform now serving all top 10 U.S. banks. These institutions utilize Confluent for critical data management tasks such as transaction processing, fraud detection, and compliance reporting. As the financial sector increasingly prioritizes real-time analytics, Confluent’s data streaming solutions have become essential.
Growing Impact in Retail and Telecommunications
In retail, Confluent’s partnership with a leading U.S. grocery chain enabled real-time inventory and pricing management, resulting in a 700% growth in e-commerce sales. In telecommunications, a Fortune 50 telecom used Confluent’s Apache Flink solution to scale real-time analytics and enhance network performance, achieving significant cost savings and improving customer retention.
Future Outlook
Confluent expects sustained growth driven by rising demand for cloud and AI applications. For Q4 2024, the company forecasts subscription revenue between $245 million and $246 million, a 21% year-over-year increase. Full-year 2024 guidance has been raised to a subscription revenue range of $916.5 million to $917.5 million, reflecting 26% annual growth. Positioned as a leader in a $60 billion data streaming market, Confluent aims to capitalize on ongoing cloud migration, AI adoption, and growing data infrastructure needs across industries.
Management comments on the earnings call.
Product Innovations
Jay Krebs, Co-Founder and CEO
“Our product innovations, like Apache Flink for real-time stream processing, enable our customers to continuously process data, meeting the growing demand for high-demand applications across sectors. This is part of our ongoing commitment to advancing real-time data solutions that add immediate value.”
Confluent Cloud
Rohan Sivaram, CFO
“Confluent Cloud’s revenue growth of 42% year-over-year underscores the success of our cloud-first strategy. With over half of our subscription revenue now coming from Confluent Cloud, we’re seeing the impact of our product-led growth as customers continue to migrate from on-premises to cloud solutions.”
Customers
Jay Krebs, Co-Founder and CEO
“We’re adding new customers at a record pace, bringing our total customer count to 5,680, with large clients driving significant ARR growth. From financial services to telecommunications, enterprises are adopting our platform to drive real-time data streaming for digital transformation and enhanced customer experiences.”
Generative AI
Jay Krebs, Co-Founder and CEO
“The growing role of data streaming in AI applications is clear. Our recent AI model inference capabilities empower customers to integrate real-time data in their machine learning pipelines, supporting generative AI use cases like chatbots and fraud detection. Our AI Accelerator program furthers this vision by equipping early-stage AI companies with essential tools for real-time data streaming.”
Future Outlook
Jay Krebs, Co-Founder and CEO
“Looking ahead, we’re entering a $60 billion market opportunity in data streaming. Our advancements in AI, cloud migration, and new real-time applications place us in a prime position to drive durable growth, and we’re excited to see how our solutions shape the future for our customers across industries.”