Business Overview

Confluent Inc. (NASDAQ:CFLT) has emerged as a pioneer in the data streaming platform category, revolutionizing the way organizations manage and leverage their data in motion. Founded in 2014 by the engineers behind Apache Kafka at LinkedIn, Confluent has rapidly established itself as a leader in the rapidly evolving data infrastructure landscape.

Confluent was founded in 2014 by a team of engineers who previously worked at LinkedIn. The company was initially created as an internal tool at LinkedIn to help manage the large amounts of data flowing through the company's systems. As the engineers recognized the broader potential for this technology, they spun it out into a standalone company - Confluent.

In its early years, Confluent focused on developing its core data streaming platform, which was built on top of the open-source Apache Kafka project. The company worked to expand the capabilities of Kafka and make it enterprise-ready through the addition of features like security, governance, and cloud-native functionality. This allowed Confluent to target larger enterprise customers that required an end-to-end data streaming solution.

Confluent encountered some early challenges as it worked to educate the market on the value of data streaming and transition organizations away from legacy data integration approaches. The company had to invest significantly in sales and marketing to drive awareness and adoption of its platform. Additionally, as a relatively new category of technology, Confluent faced competition from both open-source alternatives as well as larger cloud providers expanding into managed data streaming services.

Despite these early obstacles, Confluent was able to gain traction with customers, particularly in industries like financial services, retail, and technology that had significant data integration needs. The company's focus on making data streaming more accessible and operationalized for the enterprise resonated with organizations looking to modernize their data infrastructure. Confluent saw strong growth in both its customer base as well as revenue over its first several years of operation.

Today, Confluent provides a comprehensive Data Streaming Platform that enables customers to stream, connect, process, and govern data in motion across their enterprise. Confluent's offerings include a fully-managed, cloud-native software-as-a-service (SaaS) offering called Confluent Cloud, a self-managed software offering called Confluent Platform, and a Bring Your Own Cloud (BYOC) managed service offering called WarpStream.

Confluent's platform is designed to serve as the intelligent connective tissue that links an organization's applications, systems, and data layers into a single central nervous system of real-time data streams. The platform's four key capabilities - Stream, Connect, Process, and Govern - work together to create a robust and scalable solution for managing data in motion.

Confluent's Cloud offering provides a fully-managed, serverless experience, while the Confluent Platform and WarpStream offerings cater to customers with on-premise, private cloud, or existing cloud environment requirements. This flexible deployment model allows Confluent to serve a wide range of customer needs and preferences.

Financials and Growth

Confluent has experienced impressive growth in recent years, driven by the accelerating adoption of data streaming technologies and the company's ability to execute on its strategic initiatives. In the fiscal year 2024, Confluent reported total revenue of $964 million, representing a 24% year-over-year increase. Subscription revenue, which accounted for 96% of total revenue, grew 26% to $922 million.

The company's Confluent Cloud offering continued to gain traction, with revenue growing 38% to $138 million and representing 55% of subscription revenue, up from 49% a year ago. Confluent's strategic focus on expanding its Data Streaming Platform capabilities, including the introduction of new offerings like Tableflow, has been a key driver of growth.

Confluent's financial performance has also shown signs of improving profitability. In fiscal year 2024, the company achieved positive non-GAAP operating margin of 2.9%, a 10 percentage point improvement over the prior year. Free cash flow margin also improved significantly, reaching 1% in fiscal year 2024, making it Confluent's first non-GAAP profitable year.

Looking at the most recent fiscal year 2024 results:

• Net Income: -$345 million
• Operating Cash Flow: $33 million
• Free Cash Flow: $9 million

For the most recent quarter (Q4 2024):

• Revenue: $261 million
• Net Income: -$88 million

Geographic Performance:

• Revenue from the United States grew 20% to $154 million in Q4 2024.

• Revenue from international markets grew 26% to $108 million in Q4 2024.

Looking ahead, Confluent has provided guidance for fiscal year 2025 that suggests continued strong growth. The company expects subscription revenue to be in the range of $1.117 billion to $1.121 billion, representing growth of approximately 21% to 22%. Non-GAAP operating margin is expected to be around 6%, indicating further improvements in profitability.

For Q1 2025, Confluent expects:

• Subscription revenue between $253 million and $254 million, representing 22% to 23% growth.
• Non-GAAP operating margin of approximately 3%.
• Non-GAAP net income per diluted share between $0.06 and $0.07.

For the full fiscal year 2025, Confluent anticipates:

• Non-GAAP net income per diluted share of approximately $0.35.
• Free cash flow margin to be impacted by a one-time negative effect of about 15 points in Q1 2025, or 3 to 4 points for the full year, due to a change in the timing of cash compensation payments. Excluding this impact, adjusted free cash flow margin is expected to be approximately 6%.

Liquidity

Confluent maintains a strong liquidity position:

• Debt/Equity Ratio: 1.15 as of December 31, 2024
• Cash, Cash Equivalents, and Marketable Securities: $1.91 billion as of December 31, 2024
• The company has $1.1 billion in convertible senior notes due 2027 and no other significant debt.
• Current Ratio: 4.09
• Quick Ratio: 4.09

These metrics indicate that Confluent has a robust cash position and manageable debt levels, providing financial flexibility to support ongoing growth initiatives.

Competitive Landscape and Partnerships

Confluent faces competition from a variety of players in the data infrastructure and cloud computing space, including public cloud providers like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform, as well as legacy vendors with data integration and streaming offerings. However, Confluent's focus on building a comprehensive Data Streaming Platform, its cloud-native capabilities, and its growing ecosystem of partnerships have allowed the company to differentiate itself and gain a foothold in the market.

One of Confluent's key strategic initiatives has been the expansion of its partnership ecosystem. In February 2025, the company announced a multiyear partnership with Jio Platforms Ltd, a leading cloud services provider in Saudi Arabia, to make Confluent Cloud and Confluent Platform available as managed services. This partnership aligns with Saudi Arabia's Vision 2030 and is expected to accelerate the development of generative AI and next-generation applications in the region.

Additionally, Confluent has strengthened its long-standing partnership with Databricks, a leading provider of data and AI solutions. The companies have expanded their collaboration to offer a seamless integration between Confluent's Data Streaming Platform and Databricks' Data Intelligence platform. This integration aims to empower enterprises with real-time data for AI-driven decision-making, positioning Confluent as a crucial enabler of modern data architectures.

Risks and Challenges

As with any fast-growing technology company, Confluent faces a range of risks and challenges that could impact its future performance. These include competition from larger cloud providers, the ability to maintain its technological edge, the successful execution of its go-to-market strategy, and the management of macroeconomic factors such as inflation and potential recessionary pressures.

Confluent's reliance on its cloud infrastructure providers, such as AWS, Microsoft, and Google, also presents a risk, as disruptions or limitations in these third-party services could adversely affect the company's operations and customer experience.

Additionally, Confluent's transition to a consumption-oriented sales model for its Confluent Cloud offering may introduce some near-term volatility in its financial results as the company optimizes this new approach.

Industry Trends

The data infrastructure market is experiencing rapid growth, driven by the increasing adoption of cloud technologies, the proliferation of data, and the rise of artificial intelligence. Industry analysts estimate that the market for data streaming platforms like Confluent's is expected to grow at a compound annual growth rate (CAGR) of over 30% in the coming years. This favorable market environment presents significant opportunities for Confluent to expand its customer base and increase its market share.

Customer Metrics and Platform Adoption

Confluent's customer base continues to expand, with approximately 5,800 customers as of December 31, 2024, representing a 17% increase from the prior year. The company added 840 new customers in fiscal 2024. Notably, Confluent had 1,380 customers contributing $100,000 or more in annual recurring revenue (ARR), a 12% year-over-year increase. The company's dollar-based net retention rate stood at 117% as of December 31, 2024, indicating strong expansion within existing customers.

These metrics underscore the growing adoption of Confluent's Data Streaming Platform across various industries and highlight the company's ability to attract and retain high-value customers.

Conclusion

Confluent's pioneering role in the data streaming platform category, its comprehensive product offerings, and its strategic partnerships position the company as a critical enabler of real-time data management and analytics for enterprises. The company's strong financial performance, improving profitability, and compelling growth outlook suggest that Confluent is well-positioned to capitalize on the accelerating adoption of data streaming technologies and the growing demand for real-time data capabilities. As Confluent continues to innovate and expand its ecosystem, it may emerge as a dominant force in shaping the future of data infrastructure and powering the next generation of data-driven business solutions.