Shares of Confluent (CFLT -0.14%) were down 44.3% as of 12:30 p.m. ET Thursday after light forward guidance overshadowed stronger-than-expected third-quarter results from the data software company.
Confluent's quarterly revenue grew 32% year over year to $200.2 million, translating to non-GAAP (adjusted) earnings of $0.02 per share (swinging from a loss of $0.13 per share in the same year-ago period). Analysts, on average, were expecting a breakeven quarter on revenue of $195.4 million.
Confluent's strong third quarter just wasn't enough
Confluent co-founder and CEO Jay Kreps lauded the company's strong results despite "a volatile macroeconomic environment," adding that this quarter marked its first-ever period with positive adjusted earnings. Within Confluent's top line, subscription revenue climbed 36% year over year to $189.3 million, while Confluent Cloud revenue grew 61% to $92 million. Confluent also saw solid momentum from large customers, with a 25% increase in clients (to 1,185) with annual recurring revenue of at least $100,000.
Looking ahead, however, the market is obviously worried about Confluent's decelerating growth. Remaining performance obligations -- a key measure to help gauge future growth -- ended the quarter at $824 million, up "just" 24% year over year.
For the current fourth quarter of 2023, Confluent expects revenue of $204 million to $205 million, up 21% year over year at the midpoint and below analysts' consensus estimates for growth closer to 26%. On the bottom line, Confluent anticipates fourth-quarter adjusted earnings of $0.05 per share, above estimates for a breakeven performance.
What's next for Confluent stock?
To be clear, this earnings season has definitely punished companies more severely for providing light forward guidance than it has rewarded them for beating expectations in a given quarter.
That raises the question: Does Confluent's light fourth-quarter revenue outlook merit today's 40%-plus drop? I don't think so. On the contrary, it seems as though the severe punishment doesn't fit Confluent's "crime," and I won't be the least bit surprised if we see a bit of a rally in the coming days as the market comes to its senses.
