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Confluent, Inc.


Wall street consensus:

### Consensus View on Confluent Inc. (CFLT)

#### Performance Overview

The sell-side analyses present a diversified view of Confluent's stock, yet they converge on a cautiously optimistic outlook towards the company's future. UBS Global Research expresses a neutral stance, pivoting on concerns related to market maturity and rising competition, with an upgraded price target to $26. Despite a notable rebound in stock prices post-Q3 earnings, apprehensions about growth deceleration remain. Conversely, another report acknowledges a stable and somewhat encouraging performance on the back of a modest earnings beat and unchanged growth guidance. It signifies a fair pricing at 10x 2024e revenues considering the 20-25% growth trajectory. In contrast, a more optimistic report highlights a strong 2024 outlook following a Q4 performance beat, driven by enhanced platform strength, sales execution, and digital-native consumption, hinting at Confluent's solid market position and underlying strength.

#### Key Topics Synthesis

1. **Growth and Market Positioning:** There's a general consensus on the significance of Confluent's growth trajectory. While concerns about growth deceleration due to market maturity and increasing competition are mentioned, recent achievements and future guidance shine a more positive light, with a focus on digital-native customer engagement and cloud revenue outlook which is anticipated to contribute significantly to the company's income.

2. **Sales and Strategy:** The shift towards a usage-based sales model is noted, alongside stable results and guidance. Effective implementation and transitioning towards this model, without causing disruptions, could be pivotal in unlocking future sales and maintaining growth momentum.

3. **Product and Cloud Dynamics:** All reports touch upon the implications of Confluent's product offerings and cloud strategy. Despite concerns over feature gaps and cloud adoption rates, the successful roll-out of new products like Flink and the increasing cloud revenue stream suggest potential positive outcomes for product adoption and consumption patterns among customers.

#### Future Investment Considerations Compilation

1. **Growth Sustainability and Market Dynamics:** The importance of monitoring market maturation and the competitive landscape is unanimously recognized, especially in relation to cloud offerings and the managed Kafka market. Keeping an eye on Confluent's maneuvers to sustain growth in a possibly saturated market is critical.

2. **Sales Execution and Strategy:** The transition to a usage-based sales model and its subsequent execution, coupled with strategies to enhance digital-native customer engagement, emerge as key considerations for ensuring future sales growth and operational efficiency.

3. **Product Innovation and Cloud Revenue Targets:** The development of new products, such as the Flink stream processing engine, and the emphasis on cloud revenue's role in the company’s portfolio underscore the significance of product innovation and successful cloud strategy execution.

4. **Consumption Trends and Customer Engagement:** Identifying high-ROI use cases for customers and monitoring the consumption trends among digital-native companies are highlighted as essential for driving adoption and accelerating revenue growth.

In summary, while caution from certain competitive and market maturity perspectives is advised, the consensus leans towards a cautiously optimistic outlook on Confluent's ability to navigate its challenges through strategic sales models, product innovation, and capitalizing on cloud revenue growth opportunities.


​Recent Conference Call

1. **Insightful Quote from the Earnings Call:**
- **Rohan Sivaram, Chief Financial Officer:** "The reality of cloud infrastructure services is the ramp is more gradual than that. People have to first see it be a solid target to build against. Then they have to build their applications, get them to production where they kind of run at scale and generate workloads. And then those workloads have to accumulate to add up to the revenue."

2. **Key Quarterly Business Trends:**
- **Sustained High Growth in Tight Environment:** Confluent sustained high revenue growth amidst a challenging spending environment, emphasizing its dominance in the streaming data sector.
- **Shift Towards Efficiency:** The company focused on efficiency while maintaining strategic investments in product development, particularly around expanding beyond its core Kafka services to a more integrated data streaming platform.
- **Adoption of Consumption-Based Sales Model:** A significant strategic shift towards a consumption-based go-to-market strategy to better align with customer usage patterns and needs, which is anticipated to become a major driver of growth.

3. **Critical Questions from Sell-side Analysts:**
- **Question on Sales Transition to Consumption (Sanjit Kumar Singh):** Singh inquired about the shift in sales strategy to a consumption-based model, including how it changes the role of sales representatives and affects financial KPIs.
- **Management Response:** The shift focuses on driving consumption by aligning sales incentives with customer value creation. This transition is not expected to change fundamental business or revenue recognition models but emphasizes subscription revenue and net retention rates over RPO as key indicators of growth.

- **Question on Market Environment Challenges (Unknown Attendee):** The participant asked for insights into the conflicting signals from the software industry regarding consumption patterns, particularly in light of optimistic reports from some major companies versus more conservative views from others.
- **Management Response:** The company acknowledged stabilization in spending patterns without seeing a full recovery to pre-downturn levels. It highlighted the strength in production use cases and mission-critical applications, leading to more continuous building and less optimization potential, differentiating Confluent's business dynamics from broader industry trends.

- **Unique Question on AI Opportunities (Sanjit Kumar Singh):** Singh sought updates on how General AI trends are influencing streaming data platforms and Confluent's role in enabling these technologies.
- **Management Response:** The company sees substantial growth opportunities both in serving AI-focused companies and in enabling traditional enterprises to integrate their data with AI technologies for enhanced customer experiences. This matches the logical evolution of data demands and the significance of real-time processing in AI applications.

4. **Outlook or Guidance:**
- Confluent projects a balance of growth and efficiency, aiming for a net-neutral margin in 2024, with focus areas being the product launches like Flink GA and a strategic shift in sales to a consumption model. This approach leverages both immediate product capabilities and longer

Key Questions to follow

Given the thematic investment tag focusing on M&A, E-commerce, Europe, Cloud, and Digital for Confluent Inc. (CFLT), and incorporating insights from the provided documents, the company seems to be navigating a complex landscape characterized by competitive pressures, market maturation, and shifts towards cloud adoption. These elements intertwined with Confluent’s strategic maneuvers and market positioning create a fertile ground for several pertinent questions relating to its future growth potential within this thematic context:

1. **Strategic Acquisitions and Partnerships in Europe to Accelerate Growth:**
Given the emphasis on both M&A and European market expansion within the thematic investment tag, how might Confluent Inc. leverage strategic acquisitions or partnerships in Europe to address product gaps and enhance its competitive stance, especially in the cloud and digital sectors? Could such moves bolster its presence in the E-commerce landscape, tapping into new high-ROI use cases for data streaming in an increasingly digitized retail environment?

2. **Exploiting Cloud and Digital Innovation to Counter Market Maturation:**
In light of the concerns regarding market maturation and the competitive landscape, particularly from tech giants like Microsoft Azure, what innovative strategies could Confluent Inc. adopt within its cloud offerings to remain appealing to digital-native customers? How could advancements in cloud technology and digital services amplify Confluent’s growth trajectory, especially considering the prospective general availability of Flink in Confluent Cloud’s stream processing engine?

3. **Geographic and Sector Diversification Towards E-commerce and Digital Sectors in Europe:**
Considering the thematic focus on E-commerce and the digital economy, alongside the strategic interest in Europe and cloud-based solutions, how is Confluent Inc. positioning itself to capture growth from the burgeoning e-commerce sector within Europe? Are there specific digital transformation trends within European markets that Confluent is particularly well-suited to capitalize on, through its cloud services or data streaming technologies, to drive future revenue growth and strengthen its foothold against competitors?

These questions are designed to probe deeper into Confluent Inc.’s strategic plans and operational adjustments in responding to the current market dynamics and future opportunities. The answers could offer investors insights into the company’s resilience, adaptability, and growth potential amidst the evolving landscape of cloud technology, digital transformation, and competitive pressures.

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