Shares of data streaming software company Confluent were crushed in trading Thursday, after the company gave a revenue forecast short of expectations. CFLT stock fell more than 40%.
In an earning release late Wednesday, Confluent reported adjusted earnings of 2 cents per share on revenue of $200.2 million. That topped analyst estimates of a break-even quarter, on an adjusted basis, with revenue of $195.8 million.
Earnings were up 115% year over year and sales up 32%.
The trouble was in the company's revenue guidance. The company projected sales between $204 million and $205 million. Analysts were looking for $212 million.
CFLT stock fell 42.1% t0 16.28 on the stock market today. Prior to Thursday's slide, CFLT stock had gained 26.5% on the year.
Shift To Consumption Model
Mountain View, Calif.-based Confluent describes its software as a "central nervous system" for tracking data in real-time. Its clients include Instacart and Albertson's.
The company is transitioning its business to collect revenue based on consumption of its services, rather than upfront bookings.
"In the current macro environment, we believe customers have less appetite for larger upfront commitments and prefer consumption against smaller commits," said Confluent Chief Financial Officer Rohan Sivaram, on the earnings call.
Further, Chief Executive Edward Kreps said the company is facing "continuing macro pressure, including the ongoing conflict in the Middle East, where Israel is a top 10 country for us, and the possible U.S. government shutdown, both of which add uncertainty and disruption in particular segments."
CFLT Stock: Downgraded By BofA
CFLT stock was downgraded from neutral to underperform by BofA Securities following the report.
"Confluent is not alone in the company of software firms experiencing macro pressure," wrote BofA analyst Brad Sills. "However, the magnitude of incremental impact to growth — FY24 guidance for 22% versus our 28% — is the result of several added company-specific items."
Sill cited Confluent's "outsized exposure" to Israel and its sales model transition as a possible weight on growth.
Meanwhile, Barclays analyst Raimo Lenschow maintained an overweight, or buy, rating for CFLT stock. He said the company is "another victim" of the economic cycle for software companies. Firms such as Datadog and Snowflake have faced similar challenges this year, he added.
"CFLT shares will likely suffer in the short-term," Lenschow wrote in a client note. "However, we don't think the investment case is broken. The company is simply suffering from the same fate as the other consumption names with the added pressure from the necessary change in sales commission structure."
