CFLT Q3 Deep Dive: Cloud Consumption, AI Initiatives, and Flink Adoption Shape Results

Data streaming platform provider Confluent (NASDAQ:CFLT) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 19.3% year on year to $298.5 million. On the other hand, next quarter’s revenue guidance of $296 million was less impressive, coming in 3% below analysts’ estimates. Its non-GAAP profit of $0.13 per share was 33.6% above analysts’ consensus estimates.

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StockStory’s Take

Confluent's third quarter was met with a significant positive market reaction, driven by robust cloud revenue growth and expanding adoption of its data streaming products. Management attributed the performance to increased late-stage pipeline activity, particularly from enterprise customers deepening their engagement with Confluent Cloud and newer offerings like Flink. CEO Jay Kreps emphasized the impact of field alignment efforts and the acceleration of new use cases moving into production, stating, “momentum continued in Q3 with more than 40% sequential growth in progressing late-stage pipeline and an accelerating pace of new use cases.”

Looking ahead, management sees continued momentum in cloud consumption and product expansion, but also acknowledges factors that may temper near-term growth. The company’s revenue guidance reflects anticipated headwinds from large customer transitions and ongoing optimization trends. CFO Rohan Sivaram highlighted that while Q4 guidance incorporates a low single-digit impact from one large AI-native customer shifting to a self-managed deployment, the overall business retains strong visibility through increased recurring revenue commitments. Kreps added, “as AI becomes operational across every industry and geography, we believe that the demand for real-time context powered by data streaming will only grow.”

Key Insights from Management’s Remarks

Management credited the quarter’s results to disciplined go-to-market execution, strong cloud product uptake, and expansion within enterprise accounts, while also highlighting growing opportunities in AI and stream processing.

• Enterprise customer expansion: Confluent saw the largest net addition of $100,000+ annual recurring revenue (ARR) customers in two years, with notable traction among AI-native firms and large-scale migrations from open-source solutions.
• Flink product acceleration: Adoption of Confluent’s Flink stream processing grew rapidly, with over 1,000 customers and more than 70% sequential growth in Flink ARR for Confluent Cloud. Management pointed to both the breadth (number of users) and depth (deal size) of Flink’s adoption as key contributors to revenue expansion.
• Cloud consumption momentum: Increased late-stage pipeline activity, particularly workloads moving into production, was a primary driver of cloud revenue. Management described this as a leading indicator for future consumption growth, supported by higher-value, long-term customer deals.
• Partner ecosystem contribution: Partners sourced over 25% of new business over the last 12 months, up from 20% in the previous quarter. This channel is expected to play a larger role as Confluent scales beyond $1 billion in annual revenue.
• AI and contextual data positioning: Confluent’s platform is increasingly used as the data backbone for enterprise AI deployments, offering real-time context for AI models. Management cited more than 100 AI-native customers and highlighted the platform’s role in bridging the gap between experimental AI and production-scale systems.

Drivers of Future Performance

Management expects cloud product adoption, AI-driven use cases, and ongoing optimization to shape the company’s growth trajectory in the coming quarters, while monitoring large customer transitions and operational efficiency.

• Large customer transitions: The shift of a significant AI-native customer from Confluent Cloud to a self-managed deployment will create a low single-digit impact on short-term cloud revenue, but is already reflected in guidance.
• Ongoing optimization trends: Management anticipates that normalized levels of customer optimization—where customers adjust usage to improve cost efficiency—will continue, and described these trends as healthy and consistent with past periods.
• AI and Flink adoption: Expanding use of Confluent’s platform to support enterprise AI, along with strong momentum in Flink, is expected to drive both ARR growth and deeper customer engagement, especially as real-time data streams become integral to operational AI systems.

Catalysts in Upcoming Quarters

In the quarters ahead, the StockStory team will closely monitor (1) the pace of new use cases moving from pilot to production, which is critical for sustaining cloud consumption growth; (2) customer adoption and expansion of Flink and streaming agent products, given their early momentum; and (3) the evolving partner ecosystem’s contribution to new business. Additional attention will be paid to the company’s ability to maintain operating margin improvements as it balances growth investments with optimization trends.

Confluent currently trades at $24.09, up from $22.06 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free for active Edge members).

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