Confluent's Revised Revenue Projections And Gross Margin Outlook Prompt Analyst Downgrade

Guggenheim Securities analyst Howard Ma downgraded Confluent Inc CFLT to Neutral from Buy and removed its price target post-investor day.

The analyst is bearish on the management's lowered mid-term revenue growth target, despite new revenue opportunities, and believes the near-term upside from Flink and AI use cases are likely already priced into shares and related with potential risk in attaining full-year guidance.

For the medium term, Confluent lowered the expectations for revenue growth to around 30% (vs. 30% at the time of the IPO) while raising the outlook for adjusted gross margin to 72%-75% (vs. ~70%) and adjusted operating margin to 5%-10%. 

For the long term, CFLT expects an adjusted gross margin of over 75% and an operating margin of over 25%. 

For both the medium and long term, the company projects FCF in line with an operating margin (vs. ~10% earlier).

The analyst sees 2023 revenue growth guidance of 30%-31% achievable and believes in Confluent's long-term opportunity.

The analyst believes that CFLT's Apache Kafka is a revolutionary technology, and the company has a strong product market fit and continues to build on its competitive advantages. 

Also Read: Data Streaming Genie Is Out Of The Bottle, Confluent Positioned To Capitalize: Analyst

Price Action: CFLT shares are trading lower by 0.42% at $34.42 on the last check Thursday.