Confluent shrugs off takeover reports with strong cloud growth, sending stock higher – News

Shares of the big-data streaming company Confluent Inc. gained more than 7% in late trading today after the company posted solid third-quarter financial results that eased past analysts’ expectations.

The company reported earnings before certain costs such as stock compensation of 13 cents per share, surpassing Wall Street’s target of 10 cents per share, while revenue for the period rose 19% from a year earlier to $298.5 million. That was also better-than-expected, with analysts targeting sales of $292.6 million.

The company’s subscription revenue, which represents the bulk of its business, grew 19%, to $286.3 million. Confluent Cloud revenue was especially strong, growing 24% from a year ago, to $161 million.

Confluent has long been viewed as one of the darlings of the fast-growing big data industry, and has benefited in recent years from the huge demand for generative artificial intelligence and AI agents. The company is the chief developer of the open-source Apache Kafka data streaming platform, which is used by companies to track data points such as sales, orders, trades and customer feedback in real time. With Kafka, companies can feed this information into data analytics tools in real-time, the moment it’s created, to obtain fresh insights about the state of their business.

Apache Kafka is used by more than 80% of Fortune 500 companies and is increasingly seen as a key element of AI systems thanks to the way it can rapidly analyze data. One of its major customers is OpenAI, which uses its flagship Confluent Cloud platform, a fully managed version of Kafka. With Confluent Cloud, customers get additional features that make it easier to use, as well as more advanced security and analytics tools.

Confluent Cloud now accounts for more than half of the company’s revenue, with most of the rest coming from the Confluent Platform, which is a self-managed version that can be installed on-premises or in public or private clouds.

Confluent co-founder and Chief Executive Jay Krebs (pictured) hailed the company’s strong quarterly performance, saying the accelerated revenue reflects strong consumption growth and a deepening commitment from customers. “We’re also seeing accelerating adoption of the DSP components of our platform, particularly Flink,” he said, referring to an alternative open-source data streaming platform that also integrates with Confluent Cloud. “This foundation uniquely positions Confluent to provide the real-time context AI systems need.”

The strong results may help to subdue reports that all is not well at the company. Earlier this month, Reuters reported that the company was exploring the possibility of a sale, citing three anonymous sources with knowledge of the matter. According to that report, the company began exploring options three months earlier in the wake of its second-quarter results.

Though the company beat expectations on earnings and revenue back then, it posted a disappointing outlook after disclosing that a “major AI customer” had decided to replace Confluent Cloud with in-house software. That caused the company’s stock to fall more than 20%, and it suddenly became a more affordable acquisition target.

The report said Confluent had attracted interest from both technology firms and private equity funds. Some shareholders may be amenable to the possibility of a takeover, for despite its impressive growth of late, the company has struggled to turn a profit. Even after today’s results, it could only post a net loss of $66.5 million, down from a loss of $74.1 million a year earlier.

However, the profitability metrics are improving. In the latest quarter, the company saw its operating margin expand to 9.7%, up from 6.3% in the year-ago quarter, and it generated $24.6 million in adjusted free cash flow, up from $9.3 million one year before.

Holger Mueller of Constellation Research Inc. told News that while Confluent continues to grow at an impressive rate, there are still questions that need to be addressed by the company’s management. Most importantly, the cost of the company’s growth, he said, noting that its operating expenses grew at almost the same rate as revenue did.

“The good thing is that the bulk of the additional spending went on research and development, rather than marketing expenses,” Mueller said. “So the increased spending does bode well for the future, but investors may be concerned that the company only delivered a four-cent-per-share improvement in earnings year-over-year. In that respect, it means the quarter was weaker than in recent quarters, where it had been growing its EPS by around six-to-seven cents.”

“The next report in three months’ time will be a key one to see how Confluent is going to deal with this,” the analyst added.

For the fourth quarter, Confluent said it’s looking for subscription revenue of between $295.5 million and $296.5 million, which is more or less in line with the Street’s forecast. The company also raised its full-year earnings guidance to a range of 39 to 40 cents per share, above the consensus estimate of 36 cents per share. It also projected full-year revenue of $1.113 billion to $1.114 billion, trailing the Street’s estimate of $1.15 billion.

Photo: Confluent