Confluent's AI Edge: How Data Streaming Powers the Next Generation!

Market Feedback

1. Strong Q4 Growth Beyond Expectations

   • Subscription revenue up 24%, Confluent Cloud revenue up 38% to $138 million, Non-GAAP operating margin of 2.9%; 55% Confluent Cloud share, 13% adoption of DSP components in the cloud business; 26% international revenue growth

   • All guidance metrics exceeded expectations, reflecting the company's transition to a consumer-driven go-to-market model **Growth drivers:** Continued adoption of DSP products, new product launches (e.g., Tableflow), and strategic partnerships with Databricks and Jio Platforms

2. Guidance

   • Q1 2025.

     • Subscription revenue expected to be between $253 million and $254 million, 22%-23% growth

     • Non-GAAP net income per share expected to be $0.06-$0.07

   • Overall fiscal year 2025

     • Subscription revenue expected to be in the range of $1,117 million to $1,121 million (21%-22% growth)

     • Expected non-GAAP operating margin of approximately 6% and diluted net income per share of $0.35

3. Key Financial and Operational Data

   • Gross margin of 82%, non-GAAP operating margin of 5.2% and free cash flow margin of 11.1%

   • **Strong customer base, **Total customers reached 5,800, with 1,381 customers at $100,000 ARR, representing 90% of subscription revenue; +1.3% at $1 million ARR

4. Market Feedback and Q&A Session Highlights

   • Analyst Focus

     • Databricks partnership extensions and their impetus for real-time AI applications

     • Two major application models for generative AI in streaming data processing (real-time ETL vs. direct language modeling applications)

     • Questioning the DSP portfolio assumptions in the 2025 guidance

   • Management Response

     • CEO Jay Kreps details how the collaboration will enable real-time data integration and operational system connectivity

     • CFO Rohan Sivaram highlighted cost optimization measures and efficient growth strategies, boosting confidence in earnings improvement

   • Overall Market Sentiment

     • Analysts optimistic about expanded collaboration and DSP adoption, but concerned about momentum continuity and uncertainty in macroeconomic environment

     • Both companies generally showed increased confidence and positive expectations compared to the previous quarter

Investment Highlights

1. Revenue and Profitability Both Improve

   • Q4 subscription revenue and Confluent Cloud revenue growth of 24% and 38%, respectively

   • First non-GAAP earnings in fiscal year 2024, with subscription revenue growing 26% annually, laying the foundation for further profitability improvements

2. Strategic partnerships and product innovation drive growth

   • Tableflow Innovation

     • Enabling real-time connectivity to operations and analytics systems to help customers such as Digital Native Transportation of America and Zazzle reduce costs and increase efficiencies

   • Expanded Partnerships

     • Integration of Tableflow and Unity Catalog with Databricks to enable AI-driven real-time data decision making

     • Partnering with Jio Platforms to further expand into international markets, particularly India

3. Positive growth expectations with clear guidance for the future

   • Subscription revenue is expected to grow 22%-23% in the first quarter and 21%-22% in the full year of 2025

   • Non-GAAP operating margin expected to improve to approximately 6% as management remains confident in DSP product adoption, cost optimization and strategic partnerships

4. Strong operational and customer growth metrics

   • Customer base continues to expand, with solid growth in total customers, ARR-attained customers, and high-value customers

   • Increased adoption rate of cloud business and DSP components, indicating growing market acceptance of the Company's data streaming platform

5. Risks and Hedging Strategies

   • Potential Challenges

     • DSP products are still in the early growth stage and may face fluctuating adoption rates during the rollout process

     • Uncertainty in the macroeconomic environment may affect IT spending and the rate of customer expansion

   • Management Response Strategy

     • Relying on strategic partnerships and continuous product innovation to effectively mitigate market risks

     • Strict cost control and efficient growth strategy to ensure long-term profitability

6. Summary of Investment Highlights

   • Strong revenue and earnings growth, clear performance guidance

   • Core product innovation and expanded strategic partnerships to fuel future growth

   • Robust customer base and operational metrics demonstrate the company's competitive advantage in the data streaming platform space.

   • Potential risks will have limited impact on medium to long term investment value after effective management response