Confluent firing on all cylinders as its Q1 results beat expectations

Confluent’s first quarter 2022 results beat analyst expectations this week as the company’s commercial offering of Apache Kafka continues to gain traction in the market. A number of factors across the firm’s financials suggest that Confluent’s ‘data in motion’ message is cutting through with customers that are seeking to get to grips with their real-time data needs. 

For instance, Confluent Cloud growth is outpacing the rest of the company’s offerings, Confluent is now looking at a half a billion dollar run rate for the full year, and there were a significant number of high value deals secured throughout the quarter. 

For a broader view of Confluent’s data in motion strategy, it’s worth taking a read of diginomica’s interview with CEO Jay Kreps which outlines the company’s growth ambitions since it was spun out of LinkedIn in 2014. diginomica has also published two recent use cases that highlight how the platform is being used - both at 10x Banking and NORD/LB. 

Turning back to the numbers, the headline figures for the quarter are: 

• Total revenue of $126 million, up 64% year over year

• Confluent Cloud revenue of $39 million, up 180% year over year

• Remaining performance obligations of $551 million, up 96% year over year

• 791 customers with $100,000 or greater in ARR, up 41% year over year

• Customers with $1 million or more in ARR grew by 62% year-over-year, ending the quarter with 97 customers

Kreps also highlighted on the analyst call this week that Confluent signed its largest ever deal for Confluent Cloud with New Relic. He said: 

This eight-figure multi-year expansion deal with a massively high scale tech company is significant on a number of fronts. 

New Relic is the leading observability platform that helps engineers plan, build, deploy and run great software. New Relic is fundamentally a service for providing powerful insights into streams of observability data.

Indeed, Kafka is the backbone of all observability and log data ingested into their platform. New Relic is the kind of company that's always thinking about their customers and always innovating. Our expertise, having re-architected Kafka for the cloud and the proven scalability and reliability of our fully managed multi-cloud platform, are foundational to this new partnership.

Diving into use cases

Kreps mostly spent his time on the call this week talking through some of the use cases that Confluent is seeing play out with buyers, which, he added, is being driven by an underlying shift in how companies use software. He said: 

Software is moving from siloed applications on the edge of the business to fully connected applications that drive core parts of the customer interaction and the production of goods and services. This transition is imperative for companies to compete in the modern economy. At the heart of all this software is data and we're seeing an equally large shift in the underlying data architecture to enable this software driven business.

Data in motion is now adopted incredibly broadly with a presence in hundreds of thousands of companies in virtually every industry. Giving a complete overview of all use cases is an impossible undertaking.

Kreps said that Confluent not only captures changes to the data as it happens, but stitches together data from disconnected databases, files and custom applications to deliver a “real-time view of all customer interactions”, which in turn enables real-time engagement across all channels and experiences. He added: 

Once this continuous view of the customer is present, stream processing enables the real-time reaction to customer events to drive personalization, so that the right suggestion, experience or recommendation can be delivered to each customer at the right time.

And that's what Deutsche Bahn does for their passengers. They have a single source of truth for all the vital travel and train information and make it available on the mobile app, website, even station displays and public announcement systems. Real-time data is what improves the customer experience and gets happy passengers where they want to be on time.

Another pattern Confluent is seeing is using the platform for data mobilization across hybrid and multi-cloud architectures. Kreps said that enterprises are finding it harder than expected to realize the benefits of moving to the cloud, and are using Confluent to modernize their legacy on-premise data warehouses, as well as manage cloud native systems such as Snowflake, BigQuery, Redshift, and Databricks. Kreps said that customers are using Confluent as the “unifying, persistent bridge, enabling data to flow freely between the old legacy stack and new cloud applications”. He added: 

This pattern of running Confluent to span environments is increasingly common and Confluent is becoming a critical data fabric for enabling integration across multi-cloud and hybrid cloud environments.

Confluent has historically performed very well in the financial services industry, with a number of big name customers on its books. But it seems, according to Kreps, that the company is now having similar success in retail. He said: 

Confluent serves as a massive advantage for retailers looking to meet the demands of heightened expectations from customers for real-time omni-channel personalized experiences.

Many retail organizations use Confluent to fundamentally transform inventory and supply chain and for hyper personalization to enable real-time customer interactions that build brand loyalty.

In the US, 9 of the 10 largest retailers are Confluent customers. Confluent helps Sainsbury's reimagine their supply chain and inventory management by enabling a continuous view of product inventory. By using Confluent, they can drive lower inventory levels while avoiding selling out and enable agile response to changes in supply and demand.

My take

It’s clear that Confluent’s offering is resonating well with buyers that are struggling to get to grips with their complex data needs. Understanding real-time data is critical across a number of very real enterprise challenges at present - including supply chain, infrastructure management, as well as customer experience. The customers that I’ve spoken to are certainly seeing the benefits of the platform thus far. That being said, I think one area that Confluent could apply additional focus is extending its usability to a broader audience. We know from other vendors that in order to scale, the use case has to have broad reach to a wide range of users in the enterprise. It’s still early days for Confluent’s opportunity, but building tools to enhance ease of use for additional personas in the enterprise is an area I expect we will see more of down the line. But this is clearly another excellent set of results and the company has a clear runway to grow further over the next 12 months.