Confluent's Q3 2025 Earnings Call: Contradictions Emerge on AI Workload Impact, Flink Growth, and Databricks Competition

Business Commentary:

* Strong Cloud Consumption and Revenue Growth: - Confluent reported subscription revenue growth of 19% to $286 million for Q3, with Confluent Cloud revenue up 24% to $161 million. - The growth was driven by increasing consumption across core streaming and Data Streaming Platform (DSP) services, including acceleration of new use cases moving into production.

• Flink ARR Expansion and Customer Adoption:
• Q3 Flink ARR for Confluent Cloud grew more than 70% sequentially, with over 1,000 customers using Flink, including 12 customers spending over $100,000 in ARR and 4 customers spending over $1 million in ARR.

• This expansion is attributed to strong momentum in Flink adoption and its ability to process data in real time, supporting AI applications and data-driven operations.

• Net Retention Rate Stabilization and New Use Cases:

• Confluent's net retention rate stabilized at 114%, with new use cases in late-stage pipelines growing more than 40% sequentially.

• The stability in net retention rates is due to successful execution in field alignment, which drove consistent customer expansion and use case progression in production.

• Partnership and Government Business Growth:

• Partner-sourced deals increased to over 25% of new business, with Confluent named MongoDB Partner of the Year.
• Growth was supported by strong traction in federal business and strategic partnerships, contributing to the overall revenue increase and market share.

Contradiction Point 1

AI Workload Impact on Growth

The company's narrative on the impact of AI workloads on subscription growth is inconsistent, which may affect investor expectations and stock price volatility.

When do you expect growth to bottom out, considering multiple growth factors and revitalized go-to-market activities? - Sandhya Sin (Morgan Stanley)

2025Q3: We're pleased with the strong performance in cloud and the stability of growth rates after accounting for a particular customer impact. Tailwinds like Flink and WarpStream are contributing positively, and our team execution has been solid. - Jay Kreps(CEO)

How should we assess the impact of production AI workloads on subscription growth? - Matthew George Hedberg (RBC Capital Markets)

2025Q2: AI workloads are an important ingredient in the architecture for AI applications, and Confluent is well-positioned. Flink ARR grew 3x, emphasizing the strength of the DSP expansion. - Edward Kreps(CEO)

Contradiction Point 2

Customer Consumption Dynamics

The company's perspective on the stabilization and improvement of customer consumption dynamics is inconsistent, impacting revenue projections and investor confidence.

What are the key learnings from Q4's go-to-market changes, specifically regarding field alignment and capacity to handle increased pipeline? - Brett Zelnick (Deutsche Bank)

2025Q3: We have made improvements in field execution to drive consumption workloads. We're very confident in our late-stage pipeline progression, which is up over 40% sequentially. - Jay Kreps(CEO)

When did consumption dynamics stabilize, and how is the stabilization progressing? - Mike Cikos (Needham)

2025Q1: We saw consumption dynamics stabilize through March and April, with no immediate rebound. This was factored into our cloud guidance. - Jay Kreps(CEO)

Contradiction Point 3

AI and Data Streaming Platform (DSP) Adoption

The company's narrative on AI adoption and the impact of Data Streaming Platform (DSP) products is inconsistent, which are critical for understanding strategic growth areas.

What are the largest AI use cases expected to be in production soon? - Rob Owens (Piper Sandler)

2025Q3: Use cases include customer service, IoT, and anomalies investigation. Data quality and conversion are crucial, and Confluent addresses these with data flow and processing capabilities. - Jay Kreps(CEO)

Can you provide context on AI-related demand and product-market fit through specific use cases? - Michael Turrin (Wells Fargo)

2025Q1: We're seeing success in AI companies adopting our products and serving as the data supply chain for AI applications. There's a shift towards real-time use of data, which is a durable pattern. Current products like Flink and Tableflow are showing strong early success. - Jay Kreps(CEO)

Contradiction Point 4

Flink Adoption and Growth

The company's perspective on the adoption and growth of Flink is inconsistent, which is crucial for understanding the company's strategic direction and market traction.

Does the rise in Flink adoption and optimism about its future affect your guidance? - Raimo Landschel (Barclays)

2025Q3: Flink has seen over 70% quarter-over-quarter growth, indicating a solid trajectory. - Rohan Sivaram(CFO)

How is Flink positioned for momentum in the coming year? - Raimo Lenschow (Barclays)

2024Q4: Flink has shown maturity in product offerings and adoption, with good broad-based adoption in the customer base. - Edward Kreps(CEO)

Contradiction Point 5

Databricks Competition

The company's stance on the competitive relationship with Databricks is inconsistent, which could impact market positioning and strategic partnerships.

What is the competitive landscape with Databricks’ Structured Streaming product? - Eric Heath (KeyBank)

2025Q3: We are close partners with Databricks, serving different user bases. Confluent is more focused on real-time operational systems, while Databricks caters to data engineers and analytics teams. We are complementary in the market. - Jay Kreps(CEO)

How do you view customer adds vs. NRR, and its components? - Matthew Hedberg (RBC)

2025Q1: We've already implemented diskless technology in our cloud and WarpStream. Our Freight clusters use a pure diskless approach. We're intelligent about storage use to optimize cost and performance. This is an area of significant focus and investment. - Jay Kreps(CEO)