10-Q: Confluent Q3 2025: Revenue Growth Continues Amid Macro Headwinds

Confluent, Inc. reports continued revenue growth in Q3 2025, driven by subscription expansion, while navigating macroeconomic uncertainties and increased IT spending scrutiny.

Summary

• Total revenue for the three months ended September 30, 2025, was $298.5 million, an increase of 19% compared to $250.2 million for the same period in 2024.
• Total revenue for the nine months ended September 30, 2025, was $851.9 million, an increase of 21% compared to $702.4 million for the same period in 2024.
• Subscription revenue for Q3 2025 increased by 19% to $286.3 million, primarily driven by sales to existing customers.
• Net loss for Q3 2025 improved to $(66.5) million, compared to $(74.1) million in Q3 2024.
• Net loss for the nine months ended September 30, 2025, improved to $(216.0) million, compared to $(257.0) million in the prior year.
• Net loss per share, basic and diluted, was $(0.19) for Q3 2025, an improvement from $(0.23) in Q3 2024.
• The company had 1,487 customers with $100,000 or greater in Annual Recurring Revenue (ARR) as of September 30, 2025, up from 1,346 as of September 30, 2024.
• The dollar-based net retention rate (NRR) was 114% as of September 30, 2025, indicating expansion within existing customers.
• Confluent Cloud revenue represented 54% of total revenue for Q3 2025, up from 52% in Q3 2024.
• Cash, cash equivalents, and marketable securities totaled $1,989.8 million as of September 30, 2025.
• A $16.4 million valuation allowance on U.K. deferred tax assets was released during the first quarter of 2025 due to sustained profitability in the U.K.

Sentiment

Score: 7

Explanation: Confluent demonstrated solid revenue growth and an improving net loss, alongside a healthy dollar-based net retention rate of 114% and increasing adoption of its cloud-native offerings. These factors suggest a strong underlying business model in a growing market. However, the company continues to operate at a significant loss, and management explicitly highlights ongoing macroeconomic uncertainties, IT spending scrutiny, and consumption volatility from large enterprise customers as tempering factors. The competitive landscape and reliance on third-party cloud providers also present notable risks.

Positives

• Achieved strong total revenue growth of 19% year-over-year for Q3 2025 and 21% for the nine months ended September 30, 2025.
• Net loss significantly improved to $(66.5) million in Q3 2025 from $(74.1) million in Q3 2024, and to $(216.0) million for the nine months from $(257.0) million in the prior year.
• Increased the number of customers with $100,000 or greater in ARR to 1,487 as of September 30, 2025, from 1,346 a year prior, demonstrating continued customer acquisition and expansion.
• Maintained a healthy dollar-based net retention rate of 114% as of September 30, 2025, reflecting strong expansion within existing customer accounts.
• Confluent Cloud's contribution to total revenue increased to 54% in Q3 2025, indicating growing adoption of the fully-managed cloud-native offering.
• Generated positive cash flow from operating activities of $22.2 million for the nine months ended September 30, 2025, a significant improvement from a net cash outflow of $(1.8) million in the prior year.
• Recognized a $16.4 million income tax benefit from the release of the valuation allowance on U.K. deferred tax assets in Q1 2025, driven by sustained profitability in the region.

Negatives

• Gross margin decreased to 74% in Q3 2025 from 75% in Q3 2024, primarily due to increased costs in services.
• Services gross margin decreased due to higher costs for third-party contractors and partners.
• The company continues to report a significant operating loss of $(83.3) million for Q3 2025 and $(280.9) million for the nine months ended September 30, 2025.
• Other income, net, decreased by $4.1 million in Q3 2025, mainly due to lower interest income on marketable securities.
• Macroeconomic uncertainty, including inflation and high interest rates, continues to result in longer sales cycles, reduced IT budgets, and slowdowns in customer consumption expansion.
• Experienced and expects to continue experiencing volatility in consumption from larger enterprise customers due to cloud cost optimization efforts and shifts in data streaming strategies.
• Maintains a full valuation allowance on U.S. deferred tax assets, indicating uncertainty about their future realization.

Risks

• Historical rapid growth may not be indicative of future growth, and rapid growth makes it difficult to evaluate future prospects.
• The company has a history of operating losses and may not achieve or sustain profitability in the future, especially under high inflation or recessionary environments.
• Macroeconomic uncertainty and unfavorable global economic conditions, including geopolitical events, have impacted and may continue to impact business growth and results of operations.
• Failure of offerings to satisfy customer demands or achieve continued market acceptance over competitors, including open source alternatives like Apache Kafka, Flink, and Iceberg, would harm the business.
• Significant investments in Confluent Cloud, Data Streaming Platform capabilities, and BYOC offering may not achieve further market adoption or increased consumption.
• Reduced consumption by, or the loss or expected loss of, certain customers has historically negatively impacted and may continue to negatively impact growth.
• Failure to effectively develop and expand sales and marketing capabilities or improve sales organization productivity, including due to attrition, could harm the ability to expand the customer base.
• Inability to attract new customers or expand the potential customer and sales pipeline would adversely affect the business.
• Business depends on existing customers renewing subscriptions, purchasing additional commitments, and expanding their use of offerings.
• Failure to maintain and enhance the brand, particularly among developers, could impair customer base expansion.
• The markets in which the company participates are competitive, and ineffective competition could harm the business.
• Fluctuations in financial results and key metrics are expected, making it difficult to project future results, and failure to meet expectations could lead to stock price decline.
• Security incidents compromising confidentiality, integrity, or availability of information technology, software, services, communications, or data could lead to adverse consequences.
• Reliance on third-party providers of cloud-based infrastructure (AWS, Azure, GCP) to host Confluent Cloud poses risks of disruption, capacity limitations, or interference.
• The dual class structure of common stock concentrates voting control with pre-IPO stockholders, limiting influence over corporate matters.
• Real or perceived errors, failures, bugs, or defects in offerings could adversely affect reputation and harm the business.
• Interruptions or performance problems associated with offerings may adversely affect the business.
• Subject to increasingly stringent and evolving U.S. and foreign laws, regulations, and contractual obligations related to data privacy and security, with non-compliance leading to investigations, litigation, fines, or reputational harm.
• Use of third-party open source software (Apache Kafka, Flink, Iceberg) could negatively affect the ability to sell offerings or subject the company to litigation.
• Failure to obtain, maintain, protect, or enforce intellectual property and proprietary rights could impair the ability to protect proprietary technology and brand.
• May become subject to intellectual property disputes, which are costly and may lead to significant liability.
• Inability to develop and maintain successful relationships with partners to distribute products and services could harm the business.
• Dependence on SaaS technologies from third parties to operate the business, with interruptions or performance problems adversely affecting operations.
• Reliance on highly skilled personnel, including senior management and engineering/sales professionals; inability to retain or motivate key personnel could harm the business.
• Inability to maintain company values as the company grows could lead to loss of benefits and increased employee turnover.
• International operations subject the company to risks such as slower cloud adoption, political/economic changes, regulatory differences, and currency exchange rate fluctuations.
• Subject to governmental export and import controls, with violations leading to liability or impaired international competitiveness.
• Subject to anti-corruption, anti-bribery, anti-money laundering, and similar laws, with non-compliance leading to criminal or civil liability.
• Changes in laws and regulations related to the internet or changes in internet infrastructure itself may diminish demand for software.
• International operations may subject the company to greater than anticipated tax liabilities.
• Changes in tax laws or tax rulings, including the One Big Beautiful Bill Act and Pillar Two global minimum tax, could harm financial position.
• Could be required to collect additional sales taxes or be subject to other tax liabilities, increasing customer costs.
• Ability to use net operating losses (NOLs) to offset future taxable income may be subject to certain limitations.
• Reported financial results may be adversely affected by changes in generally accepted accounting principles (GAAP).
• If estimates or judgments relating to critical accounting policies prove incorrect, results of operations could be adversely affected.
• Failure to maintain proper and effective internal control over financial reporting may adversely affect investor confidence.
• Stock price may be volatile, and the value of Class A common stock may decline due to various factors.
• Future sales of Class A common stock in the public market could cause the market price to decline.
• Issuance of additional capital stock in connection with financings, acquisitions, or equity incentive plans will dilute other stockholders.
• No intention to pay dividends for the foreseeable future, so return on investment depends on stock price appreciation.
• Incurs significant costs as a public company, with management devoting substantial time to compliance.
• Anti-takeover provisions in charter documents and under Delaware law could make an acquisition more difficult.
• Designation of the Court of Chancery of the State of Delaware and federal district courts as exclusive forums for certain disputes restricts stockholders' choice of judicial forum.
• May not have the ability to raise funds necessary to settle conversions of convertible notes in cash or to repurchase notes upon a fundamental change.
• The conditional conversion feature of the notes, if triggered, may adversely affect financial condition and operating results.
• Certain provisions in the indenture governing the notes may delay or prevent an otherwise beneficial takeover attempt.
• Any future litigation against the company could be costly and time-consuming to defend.
• If securities or industry analysts do not publish research or publish unfavorable or inaccurate research, the market price and trading volume of Class A common stock could decline.
• Business could be disrupted by catastrophic events, including natural disasters, cyber-attacks, or pandemics.
• Climate change may have an impact on the business, including extreme weather events and increased regulations.

Future Outlook

Confluent expects continued negative impacts from adverse and uncertain macroeconomic conditions, including longer sales cycles, reduced IT budgets, slowdowns in customer consumption expansion, and increased scrutiny on IT spending. The company anticipates ongoing volatility in consumption from larger enterprise customers due to cloud cost optimization and shifts in data streaming strategies. Despite these challenges, Confluent believes there are significant opportunities to partner with customers to realize increased value and achieve durable consumption expansion over time. The company intends to continue disciplined investments in long-term revenue and profitability potential, scaling across all organizational functions, and expects research and development, sales and marketing, and general and administrative expenses to increase in absolute dollars. Confluent Cloud's contribution to revenue is expected to continue increasing, though the rate may fluctuate. The dollar-based net retention rate is expected to be tempered in the near term due to the shift to a consumption-oriented sales model and consumption volatility. The company does not expect the One Big Beautiful Bill Act (OBBBA) tax reform to have a material impact on its consolidated financial statements for fiscal 2025.

Management Comments

• We are pioneering the Data Streaming Platform category, setting data in motion to power the world's real-time operations and analytics.
• We believe that Confluent, over time, will become the central nervous system for modern digital enterprises, providing ubiquitous real-time connectivity and powering real-time applications across the enterprise.
• We will continue to monitor and evaluate the actual and potential impacts of general macroeconomic conditions and related factors on our business and operations.
• We believe it is critical for us to maintain our product leadership position and further increase the strength of our brand and reputation to drive revenue growth.
• We believe our cloud-native Confluent Cloud offering continues to represent an important growth opportunity for our business.
• We are intensely focused on continuing to grow our customer base.
• We believe our market opportunity is significant, and we are focused on continuing to make disciplined investments in our long-term revenue and profitability potential.
• We believe that existing cash, cash equivalents, marketable securities, and cash flow from operations will be sufficient to fund our short-term and long-term operating and capital needs.

Industry Context

Confluent is positioning itself as a pioneer in the Data Streaming Platform category, aiming to be the 'central nervous system' for real-time data in modern digital enterprises. This aligns with the broader industry trend of increasing demand for real-time data processing, analytics, and AI-powered applications. The company operates in a highly competitive landscape, facing competition from internal IT teams leveraging open-source solutions like Apache Kafka, as well as major public cloud providers (AWS, Azure, GCP) that offer their own managed streaming services. Additionally, legacy enterprise software vendors are pivoting into this space. The industry is currently experiencing macroeconomic headwinds, leading to increased customer scrutiny on IT spending, cloud cost optimization, and slower consumption expansion, which impacts all players in the data infrastructure market. The emergence of generative AI (GenAI) presents both opportunities and uncertainties for the data streaming market, with potential for new use cases but also unpredictable demand.

Comparison to Industry Standards

• Confluent competes with internal IT teams that develop data infrastructure software using open source software, primarily Apache Kafka.
• In the cloud, primary competitors include well-established public cloud providers such as Microsoft Corporation (Azure Event Hubs), AWS (Amazon Managed Streaming for Apache Kafka, Amazon Kinesis, Amazon Managed Service for Apache Flink), and Google (Google Cloud Pub/Sub, Cloud Managed Service for Apache Kafka, BigQuery Engine for Apache Flink).
• On-premise, competitors include vendors with legacy products that have pivoted into this space, such as TIBCO Streaming, Cloudera Dataflow, Red Hat (IBM) AMQ Streams, and Oracle Cloud Infrastructure Streaming.
• The company differentiates its offerings from open source alternatives by providing a comprehensive, fully-managed Data Streaming Platform with proprietary features like the Kora engine and Stream Governance suite.
• The dollar-based net retention rate of 114% indicates strong customer expansion, a key metric for SaaS companies, though the filing notes it is 'tempered' by the shift to a consumption-oriented model and macroeconomic factors, suggesting it might be lower than historical highs or industry leaders in more favorable conditions.

Legal Proceedings

• The company is not presently a party to any legal proceedings that, if determined adversely, would individually or taken together have a material adverse effect on its business, results of operations, financial condition, or cash flows.
• The company is subject to legal proceedings and claims that arise in the ordinary course of business, which can be costly and impose a significant burden on management and employees.

Stakeholder Impact

• Shareholders face potential dilution from future equity issuances and stock price volatility, with returns dependent on stock appreciation as no dividends are planned for the foreseeable future. The dual-class stock structure concentrates voting control with pre-IPO stockholders.
• Customers can expect continued enhancements to Confluent Cloud and the Data Streaming Platform, offering increased value through new use cases, but may face increased scrutiny on IT spending and cloud cost optimization. They also face risks of service disruptions or security incidents.
• Employees are critical to the company's success, particularly highly skilled personnel in engineering and sales. The company faces intense competition for talent, potential attrition due to economic stress or stock price volatility, and the need to maintain company values during growth.
• Suppliers and partners, especially third-party cloud infrastructure providers (AWS, Azure, GCP) and channel partners, are crucial for operations and distribution. Risks exist if these relationships are disrupted or if partners fail to perform effectively.
• Creditors, particularly holders of the 0% convertible senior notes due 2027, may be impacted by the company's ability to make cash payments upon conversion or repurchase, which could affect liquidity.

Next Steps

• Continue to invest efficiently in engineering capabilities and marketing activities to maintain product leadership and increase developer mindshare.
• Leverage cloud-native differentiation to drive Confluent Cloud growth and encourage adoption and expansion via new use cases.
• Invest in sales and marketing efforts, including pipeline generation and execution, and developer community outreach, to grow the customer base.
• Partner with customers to help them realize increased value in Confluent in an efficient and sustainable manner, including through expansion of new use cases.
• Take a disciplined approach in investing to grow the business while optimizing for improvements in profitability, margins, and cash flow, including streamlining operating expenses.
• Monitor and evaluate the actual and potential impacts of general macroeconomic conditions on the business and operations.
• Evaluate the impact of adopting new accounting standards updates (ASU 2023-09, 2024-03, 2025-05, 2025-06) on consolidated financial statements and disclosures.
• Reassess the approach to manage risk relating to fluctuations in foreign exchange rates as international operations grow.
• Continue to evaluate the impact of the One Big Beautiful Bill Act (OBBBA) tax reform.
• Develop and maintain proper and effective internal control over financial reporting.

Key Dates

Recommendation

Confluent demonstrates solid revenue growth and an improving net loss, alongside a healthy dollar-based net retention rate of 114% and increasing adoption of its cloud-native offerings. These factors suggest a strong underlying business model in a growing market. However, the company continues to operate at a significant loss and explicitly highlights ongoing macroeconomic uncertainties, IT spending scrutiny, and consumption volatility from large enterprise customers as tempering factors. The competitive landscape, reliance on third-party cloud infrastructure, and the dual-class stock structure also present notable risks. Given the mix of strong growth indicators and persistent challenges, a 'Hold' recommendation is appropriate, suggesting investors monitor the company's ability to navigate macro pressures and progress towards sustained profitability while continuing to expand its market leadership.

Keywords

Data Streaming Platform, Confluent Cloud, Apache Kafka, Apache Flink, Apache Iceberg, SaaS, BYOC, Data in Motion, Real-time Data, Cloud-native, Enterprise Software, Financial Results, 10-Q, Subscription Revenue, Net Retention Rate, ARR, IT Spending, Macroeconomic Uncertainty