We came across a bullish thesis on Confluent, Inc. on Compounding Your Wealth’s Substack by Sergey. In this article, we will summarize the bulls’ thesis on CFLT. Confluent, Inc.'s share was trading at $21.87 as of December 1st. CFLT’s forward P/E was 45.45 according to Yahoo Finance. Photo by Luke Chesser on Unsplash Confluent (CFLT) delivered a strong Q3 2025 performance with $298.5 million in revenue, up 19.3% year over year and ahead of estimates, driven by robust subscription growth and operational ...

Financial Data and Key Metrics Changes - Q3 subscription revenue grew 19% to $286.3 million, with Confluent Cloud revenue increasing 24% to $161 million, representing 56% of subscription revenue compared to 54% in the previous year [20][21] - Non-GAAP operating margin expanded 3 percentage points to approximately 10%, with subscription gross margin at 81.8% [4][21] - Adjusted free cash flow margin increased 450 basis points to 8.2%, and net income per share was $0.13 [21][22] Business Line Data and Key Metrics Changes - Confluent Platform revenue grew 14% to $125.4 million, driven by strong demand in financial services [20] - Flink ARR for Confluent Cloud grew more than 70% sequentially, with over 1,000 customers using Flink [7][26] - The $100K+ ARR customer count increased to 1,487, marking the largest sequential increase in two years [22] Market Data and Key Metrics Changes - Revenue from the U.S. grew 13% to $172.1 million, while revenue from outside the U.S. grew 29% to $126.4 million [21] - The company reported a net retention rate (NRR) of 114% and a gross retention rate (GRR) close to 90% [22] Company Strategy and Development Direction - The company is focusing on tightening field alignment to drive more use cases into production and expanding its Data Streaming Platform (DSP) specialist team for multi-product selling [5][7] - Confluent aims to position its Data Streaming Platform as the context layer for enterprise AI, facilitating real-time data processing and decision-making [17][19] - The company is also enhancing its partner ecosystem, with partners sourcing over 25% of new business in the last 12 months [9][28] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong consumption growth and the traction of the Data Streaming Platform, particularly with Flink [18][29] - The outlook for Q4 2025 includes expected subscription revenue in the range of $295.5 to $296.5 million, representing growth of approximately 18% [23] - For fiscal year 2025, subscription revenue is expected to be in the range of $1.1135 to $1.1145 billion, representing growth of approximately 21% [24] Other Important Information - The company highlighted the successful integration and growth of WarpStream, which has seen 8x growth in consumption since its acquisition [12][29] - Confluent was named a MongoDB Partner of the Year and served as an AWS Launch Partner for the new AI Agents and Tools category [10] Q&A Session Summary Question: What are the learnings from the go-to-market changes and conversion trends? - Management noted high confidence in the late-stage pipeline, emphasizing that these are customer workloads reaching production, which will drive future consumption [32] Question: Why should RPO be considered a reliable leading indicator? - RPO is viewed as a key leading indicator for Confluent Platform, while for Confluent Cloud, the focus is on the momentum of new use cases moving into production [34][36] Question: When can growth be expected to bottom? - Management expressed optimism about the cloud business's strength and noted stability in overall growth rates, despite some customer-specific impacts [40] Question: Is there a cannibalization effect from new offerings? - Management indicated that new offerings have proven to be a substantial tailwind, leading to larger deal sizes and increased customer engagement [42] Question: What is the early response to the launch of streaming agents on Confluent Cloud? - Management believes streaming agents can become a significant part of the mix, facilitating real-time data access for AI applications [50][52] Question: How significant is the cloud service provider replacement opportunity? - Management highlighted that the total cost of ownership (TCO) improvements and enhanced Data Streaming Platform capabilities are driving customer interest in migrating from existing solutions [78] Question: How are optimization levels impacting guidance? - Management described current optimization levels as healthy and normalized compared to historical trends, indicating a balanced approach to managing customer growth [84]

Financial Data and Key Metrics Changes - Q3 subscription revenue grew 19% to $286 million, representing 96% of total revenue [24][4] - Confluent Cloud revenue increased 24% to $161 million, accounting for 56% of subscription revenue compared to 54% in the previous year [24][4] - Non-GAAP operating margin expanded three percentage points to approximately 10% [4] - Subscription gross margin was 81.8%, above the long-term target of 80% [26] - Operating margin increased 340 basis points to a record 9.7%, exceeding guidance by 270 basis points [26] - Adjusted free cash flow margin increased 450 basis points to 8.2% [26] Business Line Data and Key Metrics Changes - Confluent Platform revenue grew 14% to $125.4 million, driven by demand in financial services [24] - Flink ARR for Confluent Cloud grew more than 70% sequentially, with over 1,000 customers using Flink [31][7] - The number of customers with $100k+ ARR increased to 2,533, up 36 sequentially [27] - The number of customers with $1 million+ ARR increased to 234, representing a growth acceleration of 27% [27] Market Data and Key Metrics Changes - Revenue from the U.S. grew 13% to $172.1 million, while revenue from outside the U.S. grew 29% to $126.4 million [24] - Net retention rate stabilized at 114%, with gross retention rate close to 90% [27] Company Strategy and Development Direction - The company is focused on tightening field alignment to drive more use cases into production and expanding its DSP specialist team for multiproduct selling [6][7] - The partner ecosystem sourced over 25% of new business in the last twelve months, indicating strong growth potential [10][11] - The company aims to position itself as a leader in providing real-time data context for AI applications, emphasizing the importance of data streaming in AI deployment [20][22] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong cloud consumption growth and the overall performance of the data streaming platform [22][36] - The company expects subscription revenue for 2025 to be in the range of $295.5 million to $296.5 million, representing approximately 18% growth [29] - For fiscal year 2025, subscription revenue is expected to be between $1.1135 billion and $1.1145 billion, indicating approximately 21% growth [29] Other Important Information - The company highlighted the successful integration and growth of WarpStream, which has seen eightfold growth in consumption since its acquisition [14][35] - The company has maintained a win rate above 90% in replacing CSP streaming offerings, with average deal sizes more than doubling over the past two quarters [11][12] Q&A Session Summary Question: Insights on go-to-market changes and pipeline conversion trends - Management noted that the specialization model for DSP and field execution improvements have driven strong pipeline progression, with high confidence in the late-stage pipeline [40][41] Question: RPO and CRPO as leading indicators - Management confirmed that RPO is a key leading indicator for the Confluent platform, while for Confluent Cloud, the focus is on new use cases moving into production [45][46] Question: Growth outlook and cannibalization effects - Management indicated that new offerings have proven to be a substantial tailwind, leading to larger deal sizes and increased customer engagement [54] Question: Flink adoption and future business impact - Management expressed excitement about Flink's growth and its potential to drive significant business opportunities in the future [76][78] Question: AI use cases and customer readiness - Management highlighted various AI use cases across industries, emphasizing the importance of data flow and quality in achieving successful AI deployments [86][87]

Financial Data and Key Metrics Changes - Q3 subscription revenue grew 19% to $286.3 million, representing 96% of total revenue [19][20] - Confluent Cloud revenue increased 24% to $161 million, accounting for 56% of subscription revenue compared to 54% in the previous year [19][20] - Non-GAAP operating margin expanded 3 percentage points to approximately 10% [3] - Subscription gross margin was 81.8%, exceeding the long-term target of 80% [20] - Operating margin increased 340 basis points to a record of 9.7% [20] - Adjusted free cash flow margin rose 450 basis points to 8.2% [20] Business Line Data and Key Metrics Changes - Confluent Platform revenue grew 14% to $125.4 million, driven by demand in financial services [19] - Flink ARR for Confluent Cloud grew more than 70% sequentially, with over 1,000 customers using Flink [25][26] - The number of $100K+ ARR customers increased to 1,487, marking the largest sequential increase in two years [21] - The $1 million+ ARR customer count rose to 234, representing a 27% growth acceleration [21] Market Data and Key Metrics Changes - Revenue from the U.S. grew 13% to $172.1 million, while revenue from outside the U.S. grew 29% to $126.4 million [20] - RPO (Remaining Performance Obligations) grew 43%, indicating strong future revenue visibility [24] Company Strategy and Development Direction - The company is focusing on tightening field alignment to drive more use cases into production, with over 40% sequential growth in late-stage pipeline [4][24] - There is a strong emphasis on expanding the Data Streaming Platform (DSP) and multi-product selling, particularly with Flink [5][26] - The partner ecosystem is contributing significantly, with over 25% of new business sourced from partners [8][26] - The company aims to position its Data Streaming Platform as the context layer for enterprise AI, facilitating the transition from AI experimentation to production [16][27] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong cloud consumption growth and the traction of the Data Streaming Platform, particularly with Flink [17][27] - The outlook for Q4 2025 includes expected subscription revenue in the range of $295.5 to $296.5 million, representing approximately 18% growth [22] - For fiscal year 2025, subscription revenue is expected to be between $1.1135 to $1.1145 billion, indicating approximately 21% growth [23] Other Important Information - The company ended Q3 with $1.99 billion in cash, cash equivalents, and marketable securities, reflecting a strong balance sheet [20] - The WarpStream acquisition has seen 8x growth in consumption since its acquisition [11][26] Q&A Session Summary Question: Insights on go-to-market changes and pipeline conversion trends - Management highlighted the effectiveness of the specialization model for DSP and the high confidence in the late-stage pipeline, which is expected to drive future consumption [29][30] Question: RPO and CRPO as leading indicators - RPO is considered a key leading indicator for Confluent Platform, while for Confluent Cloud, the focus is on the momentum of new use cases moving into production [31][32] Question: Growth stabilization and cloud business outlook - Management noted that the cloud business has shown stability, with positive trends in new use cases and product adoption [34] Question: Impact of new offerings on core streaming business - New offerings have proven to be a substantial tailwind, leading to larger deal sizes and increased customer engagement [37] Question: Flink's growth and future potential - Flink has seen significant adoption, with over 1,000 paying customers, and management is optimistic about its future growth potential [56] Question: AI use cases and customer readiness - Management indicated that AI use cases are broad, with many enterprises actively pursuing projects across various sectors [61]

Financial Performance - Q3'25 subscription revenue reached $286337000, a 19% year-over-year increase[8] - Q3'25 cloud revenue was $161000000, representing a 24% year-over-year growth[8] - The company achieved a non-GAAP operating margin of 97% in Q3'25, a 34 percentage point increase year-over-year[8] - Adjusted free cash flow margin was 82% in Q3'25, up 45 percentage points year-over-year[8] - The dollar-based net retention rate was 114%[8] Customer Growth - The number of customers with at least $20000 in ARR increased by 7% year-over-year[63] - Customers contributing $100000 or more in ARR increased by 10% year-over-year[63] - The number of customers with at least $1000000 in ARR increased by 27% year-over-year[63] Market and Strategy - The company estimates a total addressable market (TAM) exceeding $100 billion[48, 74] - The company is focused on managing net dilution to below 2% long-term[69, 72] - The company is creating a data streaming platform[74]

Financial Data and Key Metrics Changes - Subscription revenue grew 21% to $270.8 million, representing 96% of total revenue [26] - Confluent Cloud revenue increased 28% to $150.5 million, accounting for 56% of subscription revenue compared to 52% in the previous year [26] - Non-GAAP operating margin improved to 6%, up approximately six percentage points [5][28] - Adjusted free cash flow margin increased to 3.9% [28] - Net income per share was $0.09 with a diluted share count of approximately 380 million [28] Business Line Data and Key Metrics Changes - Confluent Platform revenue grew 12% to $120.3 million, driven by strong performance in financial services and OEM partners [26] - Flink ARR grew approximately 3x over the past two quarters, approaching $10 million [5][16] - RPO growth accelerated to 31%, indicating deepening customer relationships [8] Market Data and Key Metrics Changes - Revenue from the US grew 15% to $164.3 million, while revenue from outside the US grew 29% to $117.9 million [27] - Total customer growth was in line with the average growth rate of the previous four quarters [29] - 20k+ ARR customer count grew approximately 8% to 2,497, representing over 95% of ARR [29] Company Strategy and Development Direction - The company is focusing on three key areas: replacing CSP streaming offerings, enhancing the partner ecosystem, and expanding Flink [10][12][34] - The partner ecosystem has sourced over 20% of the business in the past year, with significant partnerships established [14][35] - The company aims to capture a meaningful share of the $100 billion data streaming market [24] Management's Comments on Operating Environment and Future Outlook - Management noted that larger customers are optimizing their usage, which is expected to impact consumption growth in the near term [6][30] - Despite consumption headwinds, management remains confident in the strength of the business and the potential for growth in AI workloads [23][34] - The outlook for Confluent Cloud assumes month-over-month growth rates will remain notably below historical averages for the remainder of the year [31] Other Important Information - The company is seeing early success in operational enhancements aimed at improving customer engagement and driving use case expansions [9][33] - The Flink offering is central to the company's strategy for real-time data processing, with significant growth observed [17][34] Q&A Session Summary Question: Can you elaborate on the consumption optimization trends? - Management indicated that the optimization is a broader trend seen across various companies, with some customers reducing their Confluent Cloud usage due to internal changes [37][40] Question: How do you see production AI workloads impacting subscription growth? - Management believes that the relevance of streaming and processing in AI applications will positively impact subscription growth moving forward [43][45] Question: What is the outlook for NRR and GRR metrics? - Management expects near-term pressure on NRR and GRR due to current consumption patterns but sees potential tailwinds from operational improvements and customer commitments [98][99] Question: How is the company addressing the challenges in the 20k+ customer segment? - Management acknowledged the need to focus on this segment and is implementing strategies to drive growth, particularly through CSP takeouts [78][80]

Financial Data and Key Metrics Changes - Confluent reported a 21% growth in subscription revenue, reaching $270.8 million, which represented 96% of total revenue [25] - Non-GAAP operating margin increased to 6%, up approximately six percentage points year-over-year [4][28] - Adjusted free cash flow margin rose to 3.9%, reflecting operational efficiencies [28] Business Line Data and Key Metrics Changes - Confluent Cloud revenue grew 28% to $150.5 million, accounting for 56% of subscription revenue, up from 52% in the previous year [25] - Confluent Platform revenue increased by 12% to $120.3 million, driven by strong performance in financial services and OEM partnerships [25] - Flink ARR grew approximately 3x over the past two quarters, approaching $10 million [15][31] Market Data and Key Metrics Changes - Revenue from the US grew 15% to $164.3 million, while revenue from outside the US increased by 29% to $117.9 million [26] - Total customer growth remained consistent with previous quarters, with 20k+ ARR customer count growing 8% to 2,497 [29] Company Strategy and Development Direction - The company is focusing on enhancing operational efficiencies and improving coverage ratios between account executives and post-sales roles to drive customer engagement [6][7] - Confluent is doubling down on three strategic areas: replacing CSP streaming offerings, expanding the partner ecosystem, and growing the Flink business [8][12][15] - The partner ecosystem has sourced over 20% of business in the past year, indicating a strong collaborative approach to market penetration [13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged near-term consumption headwinds but expressed confidence in the long-term growth trajectory, particularly in AI workloads and DSP monetization [22][35] - The company expects production AI use cases to grow 10x across a few hundred customers, indicating a significant market opportunity [19][33] - Management raised full-year growth expectations for Confluent Platform, reflecting strong pipeline visibility [31] Other Important Information - The company ended the quarter with $1.94 billion in cash, cash equivalents, and marketable securities, providing a strong financial position [29] - Non-GAAP net income per diluted share was reported at $0.09, with expectations for continued growth in the upcoming quarters [28][31] Q&A Session Summary Question: Can you elaborate on the consumption optimization trends? - Management noted that optimization efforts are similar to trends seen across the industry, with some customers focusing on maximizing value from existing purchases [40][41] Question: How do you see production AI workloads impacting subscription growth? - Management believes that the relevance of streaming in AI applications will positively influence subscription growth moving forward [43][45] Question: What is the outlook for net revenue retention (NRR)? - NRR is expected to face near-term pressure due to current consumption patterns, but management is optimistic about future tailwinds from operational improvements and customer commitments [93][94] Question: How is the go-to-market strategy evolving? - Management indicated that changes in sales compensation to focus on incremental consumption have been beneficial, and they are optimistic about driving new use cases [62][63] Question: What are the expectations for structural changes from field realignment efforts? - Management is already seeing positive momentum from recent changes and expects these adjustments to yield meaningful results in the near future [107][108]

Financial Performance - Confluent's Q2 2025 revenue reached $282.3 million, a 21% year-over-year increase[9,58] - Cloud revenue was $150.5 million, representing a 28% year-over-year growth[9,56] - The company achieved a Non-GAAP operating margin of 6.3%, a 6 percentage point increase year-over-year[9] - Adjusted Free Cash Flow Margin was 3.9%, a 3 percentage point increase year-over-year[9] - Subscription revenue for Q2 2025 was $270.8 million[54,79] Customer Growth and Retention - Net Retention Rate was 114%[9] - The number of customers contributing $100,000 or more in ARR grew by 24% year-over-year[60] - Customers with >= $1M in ARR increased by 10% YoY[60] Market and Strategy - Confluent estimates a total addressable market (TAM) of over $100 billion[46,70] - The company is focused on expanding its Data Streaming Platform (DSP) capabilities[8,21] - Confluent is transitioning to "Act 3," focusing on a complete Data Streaming Platform[8,48] Revenue Mix - In Q2 2025, US revenue accounted for 53% and International revenue accounted for 47% of the total revenue[58] - Confluent Cloud accounted for 50% of the revenue, Confluent Platform accounted for 46% and Services accounted for 4% of the total revenue in Q2 2025[58]

Financial Data and Key Metrics Changes - Q1 subscription revenue grew 26% to $261 million, exceeding guidance and representing 96% of total revenue [23] - Confluent Cloud revenue increased 34% to $143 million, accounting for 55% of subscription revenue [23] - Non-GAAP operating margin improved by 6 percentage points to 4% [4][26] - Subscription gross margin increased by 100 basis points to 81.7% [25] - Adjusted free cash flow margin was 1.8%, impacted by a compensation change [26] Business Line Data and Key Metrics Changes - Confluent Platform revenue reached a record $118.2 million, with growth accelerating to 18% [23] - The number of customers increased to approximately 6,140, with a net addition of 340 customers, the highest since Q1 2022 [27] - The count of $1 million plus ARR customers grew to 210, marking the best quarter for net additions in this cohort [28] Market Data and Key Metrics Changes - Revenue from the U.S. grew 23% to $156.4 million, while revenue from outside the U.S. grew 28% to $114.7 million [24] - The gross retention rate remained above 90%, demonstrating the mission-critical nature of the data streaming platform [6][28] Company Strategy and Development Direction - The company focuses on enabling customers to build next-generation applications efficiently, particularly in the age of AI [4] - Confluent aims to capture the $100 billion addressable market opportunity by leveraging Apache Kafka as a foundational technology [6] - The strategy includes a hybrid business model that allows flexibility in deployment across on-prem, cloud, and hybrid environments [12] Management's Comments on Operating Environment and Future Outlook - Management noted a slowdown in new use case additions among larger customers, while smaller customers showed stable consumption [29] - The company expects subscription revenue for Q2 2025 to be in the range of $267 million to $268 million, representing approximately 19% growth [28] - For fiscal year 2025, subscription revenue is expected to be between $1.1 billion and $1.11 billion, indicating growth of approximately 19% to 20% [29] Other Important Information - The company was named Google Partner of the Year for the sixth time, reflecting strong partnerships with leading cloud service providers [21] - Ryan McBann was promoted to Chief Revenue Officer, tasked with leading global field strategy [20] Q&A Session Summary Question: What is the status of existing use cases and consumption run rates? - Management observed lower consumption in larger customers but stable consumption in smaller ones, indicating a cycle of optimization and growth [35][36] Question: How does the company view the future of Confluent regarding diskless Kafka? - Management confirmed that both cloud and WarpStream are utilizing intelligent storage solutions, optimizing cost and performance [42][44] Question: Can you quantify the growth of DSP offerings like Flink and TableFlow? - DSP offerings are significantly outgrowing the core cloud business, with early traction noted in both cloud and Confluent Platform [48][50] Question: How does the company view customer additions versus net revenue retention (NRR)? - The company expects NRR to remain stable around 17%, supported by a strong gross retention rate [58] Question: What is the outlook for the Confluent Platform (CP) performance? - CP showed strong performance with an 18% growth, driven by multi-year deals and a balanced customer mix [99]

Financial Performance Highlights - Q1 2025 subscription revenue reached $260.9 million, a 26% year-over-year increase[8] - Q1 2025 cloud revenue was $142.7 million, representing a 34% year-over-year growth[8] - The company achieved a non-GAAP operating margin of 4.3% in Q1 2025, a 6 percentage point increase year-over-year[8] - Adjusted free cash flow margin for Q1 2025 was 1.8%, up 16 percentage points year-over-year[8] - The net retention rate was 117%[8] Customer Growth - Confluent has been driving business success at every stage of the customer journey[29] - The number of customers with at least $100,000 in ARR increased[58] - The number of customers with at least $1 million in ARR reached 210[59] Market Opportunity and Strategy - Confluent estimates a total addressable market (TAM) exceeding $100 billion[44, 69] - The company is focused on managing net dilution, targeting a long-term goal of below 2%[67] - Confluent is positioned for growth with its complete data streaming platform[69]