Street Calls of the Week
Introduction & Market Context
Confluent Inc. (NASDAQ:CFLT) presented its Q1 2025 investor presentation on April 30, highlighting strong financial performance and strategic positioning in the data streaming market. The company, founded by the creators of Apache Kafka, has established itself as a leader in the data streaming platform space, targeting a market it estimates will grow to over $100 billion by 2025.
In after-hours trading following the presentation, Confluent shares dropped 6.55% to $22.25, despite the company reporting positive growth metrics across its business lines. The stock had closed regular trading at $24.06, down 1.02% for the day.
Q1 2025 Performance Highlights
Confluent reported subscription revenue of $261 million for Q1 2025, representing a 26% year-over-year increase. The company’s cloud revenue showed even stronger growth at $143 million, up 34% compared to the same period last year. These results demonstrate Confluent’s continued momentum in transitioning customers to its cloud offerings.
As shown in the following chart of Confluent’s journey and Q1 2025 highlights, the company has progressed through several growth stages, recently entering what it calls "Act 3" with a complete data streaming platform and achieving non-GAAP profitability:
The company maintained a net retention rate of 117% in Q1 2025, consistent with the rate reported in Q3 2024, indicating stable expansion within its existing customer base. Profitability metrics showed significant improvement, with non-GAAP operating margin reaching 4.3% (up 6 percentage points year-over-year) and adjusted free cash flow margin at 1.8% (up 16 percentage points year-over-year).
Strategic Positioning and Market Opportunity (SO:FTCE11B)
Confluent positions its platform as the "central nervous system" for enterprise data, enabling real-time data streaming across various applications and systems. The presentation emphasized how modern software increasingly relies on continuous data flows rather than periodic batch processing.
The following image illustrates how Confluent’s platform serves as a central hub connecting various data sources and applications:
The company highlighted its expanding customer base across multiple industries, including financial services, technology, retail, healthcare, and telecommunications. Confluent now serves 2,487 customers with annual recurring revenue (ARR) exceeding $20,000, up from 2,262 in Q1 2024. More impressively, customers with ARR over $1 million increased to 210, up from 168 a year ago, representing 25% growth in this high-value segment.
The breadth of Confluent’s customer base across industries is demonstrated in this customer logo slide:
Confluent’s platform enables various use cases across industries, from real-time inventory management in retail to fraud detection in banking and connected health records in healthcare. The company positions itself against both legacy data infrastructure providers (including Oracle (NYSE:ORCL), Mulesoft, and Informatica) and cloud providers (Microsoft (NASDAQ:MSFT), AWS, and Google (NASDAQ:GOOGL)).
Financial Trends and Efficiency Improvements
The presentation revealed strong growth in Confluent Cloud revenue, which has become the company’s primary growth driver. As shown in the following chart, cloud revenue has grown dramatically from just $2.6 million in FY 2018 to $491.9 million in FY 2024, with Q1 2025 continuing this upward trajectory:
Confluent’s revenue mix has shifted significantly toward cloud offerings, which now represent 53% of total revenue, compared to 43% for Confluent Platform and 4% for Services. Geographically, international markets account for 58% of revenue, with the remaining 42% coming from the United States.
The company has also made substantial progress on profitability metrics, as illustrated in this chart of margin improvements:
Non-GAAP subscription gross margin improved to 81.7% in Q1 2025, up from 79.6% in FY 2023. More notably, non-GAAP operating margin reached 4% in Q1 2025, compared to -7% in FY 2023, while adjusted free cash flow margin improved to 2% from -16% over the same period.
Confluent also addressed investor concerns about stock-based compensation (SBC), stating its goal to reduce SBC from 41% of revenue in FY 2024 to mid-teens long-term, while also aiming to reduce net dilution from approximately 3% to less than 2%.
Forward-Looking Statements
Looking ahead, Confluent identified several growth drivers, including the expanding streaming opportunity, its complete data streaming platform, AI adoption, and partner ecosystem development. The company projects its total addressable market to grow from $50 billion in 2021 to over $100 billion by 2025.
The company’s management, led by co-founder and CEO Jay Kreps, emphasized Confluent’s position for "Act 3" of its journey, focusing on delivering a complete data streaming platform while improving financial efficiency. With 3,169 employees as of Q1 2025, Confluent appears well-positioned to execute on its growth strategy.
Key factors that will influence Confluent’s future performance include continued cloud adoption, expansion within existing customers, and the company’s ability to capitalize on growing interest in real-time data processing for AI applications. The presentation highlighted how Confluent’s platform can serve as essential infrastructure for various AI use cases, potentially opening new growth opportunities.
While the presentation did not provide specific guidance for upcoming quarters, the consistent growth in subscription and cloud revenues, coupled with improving profitability metrics, suggests Confluent is executing well on its strategic objectives despite facing competition from both legacy providers and major cloud platforms.
Full presentation:
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.