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On Thursday, Goldman Sachs analyst Kash Rangan adjusted the price target for Confluent Inc (NASDAQ:CFLT) shares, reducing it to $24.00 from the previous $25.00, while maintaining a Neutral rating on the stock. The revision follows Confluent’s first quarter earnings for the fiscal year 2025, which saw subscription revenue increase by 26% year-over-year, surpassing the consensus estimate of 23%. The company’s Cloud services matched expectations with a 34% growth, while its Platform services exceeded forecasts, growing 18% against an 11% consensus. According to InvestingPro data, Confluent maintains strong financial health with a current ratio of 3.99, holding more cash than debt on its balance sheet. The stock currently trades near $24, with analysts setting targets between $22 and $42.
Despite these growth figures, Confluent’s stock showed a post-market decline of roughly 10%. This reaction is attributed to several factors: the company’s Cloud revenue merely meeting—not exceeding—expectations, questions about the significance of the Platform’s revenue beat due to its upfront recognition and the shift of budgets towards Cloud services, and a slight downward revision of the fiscal year 2025 subscription revenue forecast by 1%, reflecting slower consumption trends among a subset of large customers. InvestingPro analysis shows the company achieved 24% revenue growth in the last twelve months, though it remains unprofitable with a -$397 million EBITDA.
Rangan commented on the company’s prudent decision to lower its fiscal year 2025 outlook amid broader economic uncertainty and noted that the observed weaker consumption patterns warrant further discussion until they are resolved. He also pointed out that while Confluent’s margin performance showed a positive surprise in the first quarter, future margin upside may be constrained by necessary investments in driving adoption of Confluent’s data streaming platform (DSP), enhancing solutions, and increasing brand awareness.
The analyst acknowledged several strengths from the quarter, including the highest sequential addition of customers with annual recurring revenues exceeding $1 million, a net expansion rate (NER) stabilizing at 117%, and promising signs of new product adoption. However, before adopting a more positive stance on Confluent’s stock, Rangan indicated the need for further evidence of the company’s total addressable market (TAM) expansion potential, a return to historical NER rates between 120-125%, a stronger inflection in Cloud growth, and more robust free cash flow generation to enhance its Rule-of profile.
In other recent news, Confluent Inc. reported its first-quarter 2025 earnings, revealing a positive performance that exceeded expectations. The company posted an earnings per share (EPS) of $0.08, surpassing the forecast of $0.07, and achieved revenue of $271.1 million, outpacing the anticipated $264.46 million. Despite these results, Confluent’s stock experienced a decline in aftermarket trading. The company demonstrated significant growth in its Confluent Cloud segment, with a 34% revenue increase, and added 340 new customers, marking the highest net additions in three years. Analysts from firms like JPMorgan noted the company’s conservative guidance due to macroeconomic uncertainties. Confluent projects its subscription revenue for fiscal year 2025 to be between $1.100 billion and $1.110 billion, indicating a growth rate of 19-20%. The company continues to focus on cost efficiency, with CEO Jay Krebs emphasizing the strategic importance of data streaming for mission-critical applications.
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