Cloud Stability And Acquisition Interest Will Impact Future Market Potential

Key Takeaways

• Surging real-time AI adoption and data-driven architectures are making Confluent's platform essential, fueling sustained revenue growth and high customer retention.
  
• Expanded cloud offerings, ecosystem partnerships, and targeted go-to-market strategies are enhancing recurring revenues, margins, and long-term earnings potential.
  
• Persistent customer optimization, competitive pressures, and slow adoption threaten Confluent's cloud revenue growth, margin expansion, and long-term ability to maintain premium positioning.

Catalysts

Operates a data streaming platform in the United States and internationally.

• Rapid growth in real-time AI and agentic workloads is driving increased demand for enterprise-grade streaming and processing solutions, with Confluent seeing a projected 10x expansion in production AI use cases across hundreds of customers. This is likely to accelerate subscription and platform revenue over the medium to long term as these use cases mature and proliferate.
  
• The proliferation of data volumes and the fundamental shift toward real-time, event-driven architectures are expanding Confluent's addressable market, positioning its platform as mission-critical for data-centric digital transformation across industries. This underpins sustained topline revenue growth and strong customer retention.
  
• Expanding adoption of Confluent Cloud and new offerings like WarpStream and Flink, which are showing exponential ARR growth, contribute to higher recurring revenues, improved gross margins, and growing opportunities for multi-product upsell, directly supporting net margin and long-term earnings.
  
• Strengthening and monetizing an extensive partner ecosystem-evidenced by >20% of business being partner-sourced and deepened alliances with global firms-enables broader customer acquisition, global reach, and embedded go-to-market motions. This is expected to drive both revenue growth and improved customer lifetime value.
  
• Strategic investments in sales coverage ratios, go-to-market alignment, and multi-product selling are resulting in a significant increase in late-stage pipeline (+40% QoQ), setting the stage for improved conversion rates, accelerated land-and-expand motions, and improved revenue visibility/operating leverage in future quarters.

Confluent Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Confluent's revenue will grow by 16.5% annually over the next 3 years.
• Analysts are not forecasting that Confluent will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Confluent's profit margin will increase from -29.3% to the average US Software industry of 13.1% in 3 years.
• If Confluent's profit margin were to converge on the industry average, you could expect earnings to reach $220.6 million (and earnings per share of $0.55) by about September 2028, up from $-311.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 57.8x on those 2028 earnings, up from -21.3x today. This future PE is greater than the current PE for the US Software industry at 36.6x.
• Analysts expect the number of shares outstanding to grow by 5.11% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.89%, as per the Simply Wall St company report.

Confluent Future Earnings Per Share Growth

Risks

• Ongoing customer optimization and slower pace of new use case adoption-especially among large clients-are causing persistent headwinds in Confluent Cloud consumption growth, which is now expected to remain notably below prior historical rates for the foreseeable future, directly pressuring top-line cloud revenue and potentially impacting overall subscription revenue growth.
  
• Large AI-native customers are moving towards self-management and reducing usage of fully managed Confluent Cloud offerings, leading to significant reductions in spending and transition to on-premise platforms, which risks margin compression and undermines recurring cloud-based revenue streams.
  
• Competitive intensity from cloud service providers (CSPs) and potential customer migration to open-source alternatives or self-managed Kafka increase pricing pressure and churn risk, potentially impacting Confluent's ability to maintain premium pricing, gross margins, and long-term market share.
  
• The cohort of smaller accounts ($20k–$100k ARR) is showing weak growth compared to larger segments, which could negatively impact the future pipeline for upselling and expansion into larger, more profitable accounts-suggesting possible stagnation in the customer base that fuels sustained ARR and revenue growth.
  
• Despite positive momentum in new products (like Flink), their contribution remains insignificant relative to the overall business, and their growth may not be sufficient in the near
• to mid-term to offset decelerating or contracting cloud streaming revenues, posing a risk to net margin expansion and long-term earnings growth.

Valuation

• The analysts have a consensus price target of $24.687 for Confluent based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $36.0, and the most bearish reporting a price target of just $20.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.7 billion, earnings will come to $220.6 million, and it would be trading on a PE ratio of 57.8x, assuming you use a discount rate of 8.9%.
• Given the current share price of $19.23, the analyst price target of $24.69 is 22.1% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.