Confluent, Inc (CFLT) 2Q24- Another Beat Wasn’t Enough

Downward guidance comes after our warning of slower growth

We first discussed Confluent (CFLT) in our April piece Tech Revenue Warnings where we cautioned that despite topping revenue guidance in 4Q23, the balance sheet accounts were signaling a slowdown in revenue growth. While the company topped revenue and EPS targets in 1Q24, we saw reasons to question the quality of the beat and continued to see signs of weaknesses ahead which we documented in May in Confluent Inc- Questioning the Quality of the 1Q Beat.

Last week the company reported EPS for 2Q24 was 6 cents, which beat by only 1 cent. The company cut guidance for revenue for the year from $957 million to $910 million and is guiding to adjusted EPS of 20 cents. This was the smallest beat we’ve seen by CFLT. The stock initially fell by more than 10% on the news before getting trounced further n the current tech carnage.

CFLT is not posting a meaningful profit even after non-GAAP adjustments and is forecasting a 0% non-GAAP margin for 2024. Of the 5.8 cents in non-GAAP earnings, 5.3 cents came from interest income. Who wants to pay 100x earnings for interest income?

Our review of 2Q numbers show no improvement in the outlook for growth. For a closer look at what the results are telling us about the future, let’s get behind the numbers…

---