Confluent's Expansion in Financial Services and Cloud Segment Signals Growth Opportunities
2023-07-30
FBN Securities recently held an earnings call meeting to discuss the financial performance and provide updates to investors. One of the key topics of discussion was the expansion of Confluent, particularly in the financial services industry. The company highlighted a shift in mindset towards using managed services instead of building internal infrastructure platforms, which is seen as a positive development for Confluent. This shift allows them to tap into the open-source user base and expand their market penetration. The company emphasized the importance of a good cost structure and total cost of ownership (TCO) for their cloud product, as well as ensuring ease of use and scalability. They recognized that customers go through a journey, starting with one use case and then expanding to a broader platform, and they focus on providing features and functionality to support customers at every stage.
In terms of market outlook, Confluent expects continued growth in the cloud segment, with sequential revenue add expected every quarter for the remainder of the year. The company's CRPO growth remains strong, and the net revenue retention is healthy, supporting their overall business plan. Despite the pressure on private tech companies, the commercial segment has shown resilience, and there has been no significant impact. Confluent sees untapped potential in the open-source usage market, indicating further growth opportunities. They anticipate that Confluent Cloud revenue will account for a significant portion of total revenue in the fourth quarter. Overall, Confluent is expected to experience continued growth in both the cloud and commercial segments.
The key drivers of the business for Confluent are expansion through new projects, conversion of use cases, optimization of usage, and the mission-critical nature of their product. During the meeting, the company discussed their plans for optimizing the usage of Confluent, a SaaS product, and potentially optimizing the consumption of the product through cloud optimization. They believe that their product is already fairly well-optimized as a mission-critical part of the production application stack. Additionally, the company emphasized the importance of new projects using their technology for their growth. They reaffirmed their guidance for the full year, stating a healthy demand environment and aiming to achieve breakeven on a non-GAAP operating margin basis in Q4.
While the specific KPIs discussed in the meeting were not explicitly mentioned, some relevant KPIs that may have been discussed include the growth rate or market share in the financial services industry, revenue growth, customer acquisition, customer retention, and the growth in Revenue Performance Obligation (RPO) and Current Revenue Performance Obligation (CRPO). These KPIs would provide insights into the company's overall growth, sales performance, and success in the market.
Looking ahead, Confluent's outlook for the quarter and year is positive. For the second quarter of 2023, they expect revenue to grow by 30% to 31% and anticipate a sequential revenue add in the cloud segment. They also project a non-GAAP operating margin of approximately negative 16% and a non-GAAP net loss per share in the range of negative $0.08 to negative $0.06. For the full year 2023, they expect revenue to grow by 30% to 31%.
The earnings call meeting included a diverse group of participants, including analysts from various financial institutions such as FBN Securities, Morgan Stanley, Wells Fargo Securities, Piper Sandler, Cowen and Company, Guggenheim Partners, Barclays, Mizuho Securities, KeyBanc Capital Markets, D.A. Davidson, and FBN Securities.
In conclusion, Confluent is experiencing a shift in the technology industry towards using managed services and is well-positioned to capitalize on this trend. They are targeting the open-source user base and focusing on cost-effective and efficient cloud products. The company aims to cater to customers at all stages of their journey and is addressing challenges related to usability, scalability, and data governance. Despite longer deal cycles, Confluent has been able to adapt and continues to see growth opportunities in the market.