Shares of the big-data software company Confluent Inc. took a pounding in the after-hours trading session today, losing more than a third of its value in response to light revenue guidance for the coming quarter and full year.

The company reported strong third-quarter results that surpassed Wall Street’s expectations. It said it delivered earnings before certain costs such as stock compensation of two cents per share, ahead of the analyst’s forecast of a penny-per-share loss. Revenue for the period rose by an impressive 32% from a year earlier, to $200,2 million, beating Wall Street’s target of $194.8 million.

All told, Confluent reported a net loss of $92.7 million in the quarter, down slightly from the $116 million loss it delivered a year earlier.

Despite the strong results, Confluent’s rather dismal guidance meant that its stock quickly became unstuck, dropping more than 33% in the extended trading session. The company is forecasting fourth-quarter earnings of five cents per share, in line with the analyst consensus estimate. However, its revenue forecast of between $204 million and $205 million came in well below the Street’s consensus of $212.6 million.

The full-year picture understandably doesn’t look much better. Confluent said it’s narrowing its fiscal 2023 revenue forecast to a range of $768 million to $769 million, compared with an earlier forecast of $767 million to $772 million. However, the new range sits a bit below Wall Street’s call for $770.5 million in annual sales.

Confluent co-founder and Chief Executive Jay Krebs (pictured) hailed the company’s strong performance in a volatile macroeconomic environment. “Our continued growth is driven by the critical role of data streaming and customer demand for our industry leading platform that connects, streams, governs, processes and shares streaming data everywhere,” he insisted.

The company has emerged as a key player in the big-data software industry. It’s the primary developer of the Apache Kafka open-source platform that’s used by enterprises to track data points such as sales, trades, orders and customer feedback in real time. This data is delivered in real-time streams, and companies can use Confluent’s proprietary software to analyze it instantly. Apache Kafka is used by as much as 80% of the Fortune 500.

The rapid growth Confluent is seeing is primarily thanks to its Confluent Cloud platform, which is an enterprise-grade version of Apache Kafka that runs on Amazon Web Services, Google Cloud and Microsoft Azure. It offers the advantage of being much simpler to deploy and manage than the open-source Kafka software.

Confluent Cloud remains the company’s biggest bright spot, with revenue climbing 61% from a year earlier, to $92 million, meaning it now accounts for just under half of its total sales. Confluent also reported remaining performance obligations of $824 million, up 24% from a year earlier, and said it now has 1,185 customers that generate at least $100,000 in annual revenue, up 25% from last year.

Holger Mueller of Constellation Research Inc. said Confluence continues to ride on the importance of data to the enterprise. “Whereas it used to be said that data is the new oil, now it has become the fuel for artificial intelligence,” Mueller pointed out. “Confluent is able to make money from the enterprise need to manage this data, which it does by making Apache Kafka and other tools easier for enterprises to use.”

The analyst said Confluent’s 30% revenue growth was extremely good given the current economic conditions it is facing. “The challenge for Jay Kreps and team is keeping the company’s costs down,” he said. “Confluent’s cost base grew almost as fast as its revenue did, and that’s why its earnings per share were more or less flat compared to one year ago. This means that any hiccups Confluent faces will not be pretty, as illustrated by its lower guidance today.”

During the quarter, Confluent announced that it was expanding the Confluent Cloud platform to include a fully-managed Apache Flink service, alongside its existing Kafka service. Flink complements Kafka nicely, enabling customers to analyze their business information on the fly. They can use it to run calculations on large volumes of real-time information. With the combination of Kafka and Flink, Confluent Cloud customers can not only stream data in real time between their systems but also modify that data while it’s traveling.

The addition of Flink further boosts the value of Confluent, which shields enterprises from the complexity of managing open-source software, Mueller said.

The company also boosted Confluent Cloud with the launch of a generative artificial intelligence chatbot that enables users to extract insights from their data and summarize key points with natural language questions.

Prior to today’s big decline, Confluent’s stock price had risen 26% this year.

Photo: Confluent