Executive Summary / Key Takeaways

• Confluent is solidifying its leadership in the burgeoning data streaming platform (DSP) category, positioning itself as the critical real-time data backbone for the AI era.
• The company delivered strong Q3 2025 results, with subscription revenue growing 19% year-over-year to $286.3 million and Confluent Cloud revenue up 24% to $161 million, alongside significant non-GAAP operating margin expansion to approximately 10%.
• Strategic investments in DSP components like Flink and Tableflow, coupled with offerings such as WarpStream and Freight Clusters, are driving substantial consumption growth and expanding the serviceable addressable market by offering superior Total Cost of Ownership (TCO).
• Despite ongoing macroeconomic uncertainties and customer optimization efforts, Confluent's robust balance sheet, accelerating Remaining Performance Obligations (RPO) growth of 43%, and strong partner ecosystem underscore its resilient business model and long-term growth potential.
• The company's focus on operational enhancements and a consumption-driven go-to-market strategy is yielding positive results, with late-stage pipeline progression and a record increase in $1 million-plus ARR customers.

The Central Nervous System for the Digital Enterprise

Confluent, Inc. is pioneering the Data Streaming Platform (DSP) category, a foundational layer of modern data infrastructure designed to set data in motion and power the world's real-time operations and analytics. The company's vision is to serve as the "intelligent connective tissue" or "central nervous system" linking all applications, systems, and data layers within an enterprise into a single, real-time stream of data. This strategic positioning is becoming increasingly critical in a digital-first and AI-powered world, where immediate access to trustworthy data is paramount for competitive advantage.

The competitive landscape for data infrastructure is dynamic, with Confluent operating amidst internal IT teams leveraging open-source Apache Kafka, well-established public cloud providers like AWS , Azure , and Google Cloud offering their own streaming services, and specialized data platforms such as Snowflake (SNOW), MongoDB (MDB), and Informatica (INFA). Confluent differentiates itself by offering a comprehensive, enterprise-grade platform built on Apache Kafka, providing superior performance, reliability, and a compelling Total Cost of Ownership (TCO) that often surpasses alternatives. The company has maintained win rates well above 90% against CSP streaming offerings and smaller startups, with average deal sizes more than doubling over the past two quarters, demonstrating its strong competitive edge.

Technological Edge: From Kafka to AI Context

Confluent's core technological differentiation stems from its deep expertise in Apache Kafka, which it has evolved into a complete Data Streaming Platform. This platform delivers four key capabilities: Stream, Connect, Process, and Govern. These capabilities are not merely additive but are designed to reinforce each other, creating a virtuous cycle of adoption and stickiness.

At the heart of Confluent Cloud is the purpose-built Kora engine, which significantly re-architects Apache Kafka for a fully-managed cloud service. This innovation, alongside offerings like Enterprise Clusters and Freight Clusters, provides tangible benefits. For instance, Freight Clusters are designed for high-throughput, latency-tolerant workloads, offering customers up to 90% lower costs compared to traditional approaches. This allows customers to tackle a wider range of use cases efficiently. A customer noted that for every dollar spent with Confluent, they would otherwise spend $3 managing Kafka themselves, highlighting the substantial TCO advantage.

Recent R&D initiatives have focused on expanding the DSP's capabilities, particularly in stream processing and data governance. The acquisition of Immerok GmbH in January 2023 enabled the re-architecture of Apache Flink as a cloud-native service, now a rapidly growing component of the DSP. Flink ARR for Confluent Cloud surged over 70% sequentially in Q3 2025, with more than 1,000 customers utilizing it, including over a dozen with greater than $100,000 in Flink ARR and four exceeding $1 million. Flink is crucial for enabling companies to act on data the moment it is created, transforming information into real-time decisions.

Another significant development is Tableflow, which exposes Confluent's data streams as continuously updating tables in cloud object storage using open standards like Apache Iceberg and Delta Lake. This bridges operational systems with analytical platforms such as Databricks and Snowflake, providing consistent, real-time data that is discoverable, secure, and trustworthy. The partnership with Databricks, including bidirectional integration with Delta Lake and Unity Catalog, further extends Tableflow's reach across the analytics ecosystem. Tableflow is priced separately, but its primary impact is driving new data sets and increased usage across Connect, Kafka, and Flink, thereby expanding the overall platform's footprint.

The acquisition of WarpStream Labs in September 2024 further enhanced Confluent's offerings with a Bring Your Own Cloud (BYOC) managed service. WarpStream has demonstrated remarkable growth, achieving 8x consumption growth in the past year and securing multiple six-figure deals, including with a Fortune 5 customer. This offering allows customers to increase their spend with Confluent while simultaneously reducing their overall cloud infrastructure costs, as evidenced by two customers who increased Confluent spend by 30% while decreasing CSP infrastructure costs by 50%. This flexibility in deployment models—fully managed cloud, self-managed software, and BYOC—enables Confluent to meet customers wherever they are, whether due to regulatory requirements, company mandates, or preference, adding a layer of resilience to its business model.

A History of Growth and Strategic Evolution

Confluent, incorporated in 2014, has rapidly evolved from its origins in open-source Apache Kafka to a public company pioneering the DSP category. Its initial public offering in June 2021, raising $828 million, and the subsequent issuance of $1.10 billion in convertible senior notes, provided substantial capital to fuel its aggressive product development and acquisition strategy. The company's history is marked by a consistent focus on expanding its platform's capabilities and market reach.

Fiscal year 2024 was a "consequential year," characterized by a successful transition to a consumption-driven go-to-market model. This involved fundamental changes in sales incentives and improved tracking of customer workloads, aimed at accelerating use case expansions and supporting long-term cloud business growth. By Q4 2024, DSP Cloud consumption, encompassing Connect, Process, and Govern functionalities, grew substantially faster than the overall cloud business, contributing approximately 13% of cloud revenue. This momentum underscores the effectiveness of Confluent's strategy to expand beyond core streaming into a comprehensive platform.

Financial Performance and Liquidity

Confluent's financial performance in Q3 2025 demonstrated strong execution and operational leverage. Subscription revenue grew 19% year-over-year to $286.3 million, representing 96% of total revenue. Confluent Cloud revenue increased 24% to $161 million, accounting for 56% of subscription revenue. Confluent Platform revenue also showed solid growth, up 14% to $125.4 million, driven by healthy demand in financial services. International revenue growth of 29% to $126.4 million outpaced U.S. growth, highlighting global expansion.

The company's focus on efficient, sustainable growth is evident in its expanding profitability. Non-GAAP operating margin reached approximately 10% in Q3 2025, a 3 percentage point expansion. Adjusted free cash flow margin also significantly improved, increasing 450 basis points to 8.2% in Q3 2025. This financial discipline is crucial as the company continues to invest in its growth initiatives.

Confluent maintains a robust liquidity position, ending Q3 2025 with $1.99 billion in cash, cash equivalents, and marketable securities. This strong balance sheet provides ample resources to fund its short-term and long-term operating and capital needs, including a non-cancelable services agreement commitment of $125 million through June 2030. Despite a historical accumulated deficit of $2.21 billion as of September 30, 2025, the positive trends in operating and free cash flow generation indicate a clear path towards sustained profitability.

Customer metrics further underscore Confluent's market penetration and expansion capabilities. The company recorded the largest sequential net add in $100,000-plus ARR customer count in the past two years in Q3 2025, alongside accelerating growth in $1 million-plus ARR customers, which reached 234. The dollar-based Net Retention Rate (NRR) stabilized at 114% in Q3 2025, with Gross Revenue Retention (GRR) remaining close to 90%, reflecting the mission-critical nature of its platform for existing customers. Remaining Performance Obligations (RPO) growth accelerated to 43% year-over-year in Q3 2025, providing increased longer-term revenue visibility.

Outlook and Strategic Initiatives

For Q4 2025, Confluent expects subscription revenue to be in the range of $295.5 million to $296.5 million, representing approximately 18% growth. Non-GAAP operating margin is projected at approximately 7%, with non-GAAP net income per diluted share between $0.09 and $0.10. For the full fiscal year 2025, the company anticipates subscription revenue between $1.1135 billion and $1.1145 billion, reflecting approximately 21% growth. Non-GAAP operating margin is guided to approximately 7%, and adjusted free cash flow margin to approximately 6%.

This guidance incorporates management's prudent assumption that month-over-month consumption growth rates for the cloud business will remain notably below historical patterns, particularly among larger customers who are continuing cost optimization efforts. A specific headwind is an AI-native customer's transition to self-management, which is expected to dampen Q4 cloud revenue growth by low single digits. However, these headwinds are partially offset by strong consumption across core streaming and DSP, accelerating new use cases, and the robust performance of Confluent Platform.

Confluent's strategic focus for 2025 is to establish it as "the year of DSP," emphasizing continued investment in DSP capabilities, empowering its sales team to drive DSP adoption, and forging strategic partnerships. The company's go-to-market enhancements, including tightening field alignment and accelerating the build-out of DSP specialist teams, are already yielding results, with over 40% sequential growth in late-stage pipeline progression in Q3 2025. The partner ecosystem is also a significant growth driver, having sourced over 25% of new business over the last 12 months.

Risks and Challenges

Despite its strong positioning, Confluent faces several risks. Macroeconomic uncertainty, including inflation and geopolitical events, continues to impact IT spending, leading to longer sales cycles and customer optimization efforts. The company's reliance on third-party cloud infrastructure providers (AWS (AMZN), Azure (MSFT), GCP (GOOGL)) introduces risks related to service interruptions, capacity limitations, and potential competitive actions from these providers. Competition from open-source alternatives and other data infrastructure vendors remains intense, requiring continuous product differentiation and effective sales execution.

The dual-class stock structure concentrates voting control with pre-IPO stockholders, limiting the influence of other investors. Cybersecurity risks, including sophisticated cyber-attacks and inadvertent data disclosures, pose a continuous threat to data integrity and reputation. Furthermore, expanding international operations expose Confluent to risks associated with political and economic instability, differing regulatory requirements, and currency fluctuations. While the company has implemented measures to mitigate these risks, they warrant ongoing monitoring by investors.

Conclusion

Confluent stands at the forefront of the real-time data revolution, uniquely positioned to capitalize on the explosive growth in AI and the increasing demand for data in motion. Its comprehensive Data Streaming Platform, built on the foundation of Apache Kafka and enhanced by innovative DSP components like Flink, Tableflow, and WarpStream, provides a powerful and cost-effective solution for enterprises seeking to operationalize their data in real time. The company's strong financial performance in Q3 2025, marked by robust revenue growth, expanding margins, and healthy cash flow, demonstrates the effectiveness of its strategic initiatives and disciplined execution.

While macroeconomic headwinds and customer optimization present near-term challenges, Confluent's accelerating RPO, expanding customer base, and strategic partnerships underscore its long-term growth trajectory. The company's technological leadership, particularly in unifying operational and analytical data for AI-driven decision-making, forms a strong competitive moat. As enterprises increasingly move from AI experimentation to production, Confluent's role as the "context layer for enterprise AI" is set to become even more strategic, solidifying its position as a critical infrastructure provider in the evolving digital landscape.