Shares in Confluent Inc. fell nearly 10% in late trading today after the data streaming software provider reported earnings and revenue beats in its fiscal first quarter — but a slight downward revision in its outlook, along with negative free cash flow, spooked investors about potential growth deceleration.

For the quarter ended March 31, Confluent reported adjusted earnings per share of eight cents, up from five cents per share in the same quarter of 2024, on revenue of $271.1 million, up 25% year-over-year. Analysts had been expecting seven cents per share and revenue of $264.46 million.

Confluent’s strong figures were driven by subscription revenue, which was up 26% year-over-year in the quarter to $260.9 million, while Confluent Cloud revenue, which can include subscribers, was up 34% to $143 million.

The company ended the quarter with approximately 6,140 customers, up 340 from the previous quarter, with 2,487 customers with $20,000 or more in annual recurring revenue,  1,412 spending $100,000 or more and 210 customers with $1 million or more in annual recurring revenue.

Confluent’s net free cash flow in the quarter came in at negative $33 million, down from positive $29 million in the previous quarter.

Business highlights in the quarter included Confluent’s March announcement of new Apache Flink capabilities designed to simplify real-time artificial intelligence application development. The enhancements introduced Flink Native Inference, allowing users to run open-source and fine-tuned AI models directly within Confluent Cloud, reducing latency and enhancing data security. Additionally, the company introduced Flink Search and built-in machine learning functions that streamline data discovery and integrated AI-driven capabilities like forecasting and anomaly detection directly into Flink SQL workflows.

The quarter also saw Confluent launching Client-Side Field Level Encryption, a service that allows organizations to encrypt sensitive data fields before transmission, ensuring that only authorized users or applications can access the data.

“Our growth at scale amid heightened macroeconomic uncertainty demonstrates the mission-critical nature of data streaming and our significant product leadership,” co-founder and Chief Executive Jay Kreps said in the company’s earnings release. “We remain laser-focused on enabling our customers to cost-efficiently build next-generation applications and win in the age of AI.”

There’s a famous line in the British comedy series “Faulty Towers” that says, “Don’t mention the war” and in 2025, not mentioning macroeconomic uncertainty would be wise when you’re about to reduce your annual outlook.

For its fiscal second quarter, Confluent expects adjusted earnings per share of eight to nine cents and subscription revenue of $267 million to $268 million. For the full year, the company expects subscription revenue of $1.1 billion to $1.11 billion.

Notably, Confluent had previously given a full-year outlook of $1.12 billion. Though the drop in outlook is hardly the end of the world, combined with the negative free cash flow it was enough to concern investors.

Image: Confluent