CFLT Q2 Deep Dive: Cloud Optimization Headwinds Offset by Platform and DSP Growth

Data infrastructure software company, Confluent (NASDAQ:CFLT) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 20.1% year on year to $282.3 million. On the other hand, next quarter’s revenue guidance of $281.5 million was less impressive, coming in 3.7% below analysts’ estimates. Its non-GAAP profit of $0.09 per share was in line with analysts’ consensus estimates.

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StockStory’s Take

Confluent’s second quarter results were met with a sharp market downturn, as management cited persistent consumption optimization by large customers and a more measured pace of new use case adoption. CEO Jay Kreps described these trends as part of a broader industry shift, noting, “Customers are happy, they plan to be using more data streaming over time, [but] are putting effort into making sure what they bought, they’re getting the most value out of.” Continued optimization, especially among top customers, weighed on cloud revenue growth, while the company found some relief from deepening customer commitments and strong results in its platform and Flink businesses.

Looking ahead, Confluent’s outlook reflects ongoing caution around cloud consumption growth, with management assuming a slower rebound than in prior years. CFO Rohan Sivaram emphasized, “Our outlook for Confluent Cloud assumes month-over-month growth rates for the remainder of the year will remain notably below what we’ve seen in the same period of prior years.” However, management pointed to promising signals from new use case expansion, growth in real-time AI workloads, and increased partner engagement as potential sources of future momentum. The company remains focused on operational improvements and product innovation to counterbalance near-term headwinds.

Key Insights from Management’s Remarks

Management attributed Q2 performance to continued cloud optimization by large customers, expansion of the DSP and Flink offerings, and early signs of success from recent go-to-market changes.

• Cloud customer optimization: Large enterprise clients continued to scrutinize and optimize their cloud usage, which prolonged slower growth in cloud consumption. Management noted that this trend, which affected other companies earlier, has persisted longer for Confluent.
• Flink and DSP momentum: The Data Streaming Platform (DSP) segment, particularly the Flink product for real-time data processing, saw rapid adoption. Flink’s annual recurring revenue nearly tripled in the first half of the year, signaling strong interest in real-time analytics and AI use cases.
• Partner ecosystem expansion: Confluent invested further in partnerships with global system integrators and tech companies, including new collaborations with Infosys and EY. Over 20% of business in the past year was sourced through partners, helping to broaden market reach.
• Go-to-market realignment: Under new Chief Revenue Officer Ryan Mac Ban, the company restructured sales coverage and built a DSP specialist team, which led to a 40% sequential increase in late-stage pipeline progression for new use cases.
• Competitive displacements: Management highlighted success in displacing cloud service provider (CSP) streaming offerings, boasting win rates above 90%, and cited more than two dozen such displacements in the quarter, especially driven by cost-effective solutions like WarpStream.

Drivers of Future Performance

Confluent expects muted cloud growth to persist, with future performance hinging on new use case expansion, DSP adoption, and operational improvements.

• Slower cloud consumption recovery: Management’s guidance assumes continued slow growth in Confluent Cloud, reflecting both broad-based optimization among large customers and a cautious approach to forecasting any near-term rebound in consumption patterns.
• DSP and Flink as growth drivers: The company is prioritizing the expansion of its DSP portfolio and Flink product to capture new workloads. Management believes that continued Flink adoption, particularly for real-time AI workloads, can provide incremental revenue and offset some of the core streaming headwinds.
• Operational and partner-led expansion: Recent sales realignment and deepening of partner relationships are expected to drive broader customer acquisition and use case penetration. However, there are risks if operational changes or partner momentum do not translate to sustained revenue growth.

Catalysts in Upcoming Quarters

In upcoming quarters, the StockStory team will watch for (1) evidence that new use case expansion and late-stage pipeline progress translate into higher cloud and DSP revenue, (2) the pace of Flink and WarpStream adoption as customers scale real-time AI and analytics workloads, and (3) the effectiveness of recent go-to-market and partner ecosystem changes in driving broader customer acquisition. Sustained progress in offsetting optimization headwinds will be critical.

Confluent currently trades at $16.50, down from $26.38 just before the earnings. Is there an opportunity in the stock?Find out in our full research report (it’s free).

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