On Thursday, Citi adjusted its outlook on Confluent Inc (NASDAQ:CFLT), reducing the price target to $24 from $28, while keeping a Neutral rating on the stock. The decision follows Confluent's recent financial performance, where a modest 3% total revenue beat for the June quarter was overshadowed by concerns for the fourth quarter and the full year.
The company's reiteration of its full-year targets suggested an implied 3% reduction in Q4 revenue growth expectations. This revision, coupled with several other worrying trends, prompted the price target adjustment. Notably, there was a 5-point quarter-over-quarter decrease in Net Revenue Retention (NRR), a sequential decline in PCS revenue, and a deceleration in bookings by another 10 points.
Citi's analysis highlighted that while Confluent's reasoning for cloud optimizations increasing at digital native customers in June is understandable, it contrasts with reports from other industry players like Microsoft (NASDAQ:MSFT), who cited softness in the EMEA region. The firm also expressed concerns based on partner dialogues, which indicated that several large, prominent digital native customers were struggling with scaling their consumption.
Additionally, there has been a recent uptick in competitive displacements, leading to worries that Confluent may be facing unique challenges within the company, potentially signaling further pricing and commoditization pressures. As a result, Citi has also revised its estimates for Confluent below the consensus and reiterated its Neutral/High-Risk rating for the company's shares.
In other recent news, Confluent Inc has been the subject of several price target adjustments following its recent financial performance. TD Cowen lowered the price target from $34 to $31, maintaining a Buy rating, following Confluent's 27% subscription revenue growth.
Scotiabank also reduced its price target to $25, while keeping a Sector Perform rating, due to a modest cloud revenue beat of 1%. Needham maintained a Buy rating but reduced the price target from $38 to $28, after noticing a trend of increased cost-consciousness among Digital-Native customers.
DA Davidson reduced the price target to $30, still advocating for a Buy rating, despite cost optimization pressures within the digital native customer segment. Lastly, Loop Capital decreased its price target to $25, maintaining a Hold rating, due to challenges within Confluent's sales organization.
InvestingPro Insights
In light of Citi's revised outlook on Confluent Inc (NASDAQ:CFLT), it's worth considering additional data and insights from InvestingPro. According to InvestingPro data, Confluent has a market capitalization of approximately $6.72 billion, with a revenue growth of 29.3% over the last twelve months as of Q1 2024. This growth figure aligns with the company's reiteration of its full-year targets despite the concerns for Q4 and the full year.
InvestingPro Tips highlight that Confluent holds more cash than debt on its balance sheet and has liquid assets exceeding short-term obligations. These factors can provide some financial stability amidst the competitive and pricing pressures that Citi has flagged. However, it's also noted that Confluent is not profitable over the last twelve months and is trading at a high revenue valuation multiple as well as a high Price/Book multiple of 9.41, which might be a concern for value-focused investors.
Moreover, analysts predict the company will be profitable this year, which could be a positive sign for future performance. It's important to note that Confluent does not pay a dividend to shareholders, which may influence the investment decisions of those seeking regular income.
For those considering an investment in Confluent, these metrics and insights could be valuable. The InvestingPro platform offers additional tips for a more comprehensive analysis, and interested readers can find further details at https://www.investing.com/pro/CFLT.
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