Confluent

Confluent builds managed Kafka services (distributed event streaming) and integrations with cloud providers and other SaaS to make it easy to use.

Founded by creators of Kafka

Product

>70% of Fortune 500 use Apache Kafka

Confluent Cloud

  • Cloud agnostic (AWS, Azure, GCP)
  • Usage based pricing on read/write, storage and partitions
  • Connectors billed on throughput

Confluent Platform

  • Self managed platform for continuous streaming data
  • Kafka, Zookeper
  • Subscription based pricing

Business Model

  • Revenue: 350M (+48% YoY)
    • Product Breakdown
      • Confluent Platform: 57%
      • Confluent Cloud: 22%
      • Services: 11%
    • Geographic Breakdown
      • US Revenue: 67%
      • Outside: 36%
  • Cost of Revenue
    • Cost of subscription revenue:
      • personalle costs for customer support & maintenance
      • 3rd party cloud infrastructure costs

Core Metrics

  • Revenue: 350M (+48 YoY)
    • Total Revenue: 78M (+66% YoY)
    • Cost of Revenue: 30M  (+76% YoY)
    • Gross profit: 58M (+88% YoY)
    • Gross margin: 74% YoY
  • Customers: 2830 (+104% YoY)
    • Customers >100k ARR: 617 (+51% YoY)
    • Customers > 1M ARR: 70 (+112% YoY)
  • Net dollar retention: 120%

Analysis

Kafka is a well engineered piece of software that is used as one the basis of many production systems. It is a common piece of infrastructure used across many companies and it is almost impossible to scale some use cases without it. If Confluent is able to become the main core system for streaming within a company especially for mission critical use cases they will have massive lock in as replacing that solution will take years. For my engineering perspective Kafka is as important to the data stack as MySQL. The only problem I see is companies wanting to use Confluent over the free Apache Kafka solution.

Current tailwinds of digital transformation and trends in event streaming means Confluent’s TAM is also growing quickly.

Confluent is a quickly growing SaaS in a equally quickly growing market and they are well positioned to take full advantage. Their current valuation of 50x revenue is expensive but justified by their growth and market position. Based on their current trajectory, I expect Confluent to grow to $1-1.2B revenue in 3 years putting them at a ~40-50B valuation (2-3x upside).

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