On Thursday, DA Davidson maintained a Buy rating on Confluent Inc (NASDAQ:CFLT) stock and increased the price target to $34 from the previous $30. This adjustment followed the company's strong performance in the second quarter, particularly in its Cloud Revenue, which outpaced consensus estimates and saw growth of approximately 38-39% year-over-year. This growth was noted after adjusting for a one-time revenue contribution from unused credits by a single customer.
Confluent's consumption trends showed signs of stabilization in the digital native customer vertical this quarter, following the cost optimization pressures experienced in the previous quarter. The company's Dollar-Based Net Retention Rate (DBNRR) experienced a slight decrease of one percentage point to 117%, but it is anticipated to stabilize around this level in the fourth quarter.
The firm observed a significant quarter-over-quarter and year-over-year increase in Confluent's win rates, which were reported to be well above 90% against smaller startups. Based on these positive developments, Confluent provided an updated guidance for the calendar year 2024, raising expectations for both the top and bottom line.
Additionally, the company's Free Cash Flow (FCF) is projected to be break-even to slightly positive for the full year. DA Davidson's analyst expressed a continued positive outlook on Confluent, leading to the raised price target, reflecting confidence in the company's financial trajectory and market position.
In other recent news, Confluent, Inc. reported stronger than anticipated third quarter results and increased its outlook for the full year. The data streaming platform provider recorded adjusted earnings of $0.10 per share for Q3, surpassing analyst expectations of $0.05 per share. The company's revenue for the quarter was $250.2 million, exceeding the consensus forecast of $245.05 million and marking a 25% year-over-year increase.
Confluent Cloud's revenue saw a 42% year-over-year rise to $130 million. The company also noted a 14% increase from the prior year in customers with $100,000 or greater in annual recurring revenue, totaling 1,346. Despite projecting Q4 revenue between $245-$246 million, which falls below analyst estimates of $257.1 million, Confluent raised its full-year 2024 revenue guidance to between $916.5-$917.5 million.
These recent developments highlight Confluent's strong performance and positive outlook, as confirmed by CFO Rohan Sivaram who stated that the company is now aiming for positive non-GAAP operating margin and free cash flow margin for 2024.
InvestingPro Insights
Confluent's recent performance aligns with several InvestingPro Tips and metrics. The company's strong Cloud Revenue growth is reflected in its overall revenue growth of 26.55% over the last twelve months. This robust growth supports DA Davidson's optimistic outlook and increased price target.
InvestingPro Tips highlight that Confluent holds more cash than debt on its balance sheet and its liquid assets exceed short-term obligations. These factors contribute to the company's financial stability, which is crucial as it aims for break-even to slightly positive Free Cash Flow for the full year.
Despite the positive revenue growth, an InvestingPro Tip notes that Confluent is not profitable over the last twelve months. This is corroborated by the negative Operating Income Margin of -44.94%. However, analysts predict the company will be profitable this year, which aligns with the improved guidance for the calendar year 2024.
The market seems to be pricing in future growth potential, as InvestingPro data shows Confluent trading at a high Price / Book multiple of 8.52. This valuation reflects investor confidence in the company's market position and growth prospects, particularly in light of its strong win rates against smaller startups.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips for Confluent, providing deeper insights into the company's financial health and market position.
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