I would like to delve a little deeper into the Confluent Cloud success.
The way it seems to me is that they have two very different products. One is a roaring success (Confluent Cloud) and just getting started, and the other a bigger, bit older success (Confluent Platform). Given how quickly Cloud is growing, it is likely to overtake Platform soon.
However we don’t know how much of the Cloud growth is cannibalising the Platform revenue, we don’t know the NRR of different size customers or of Platform only vs Cloud only vs Platform & Cloud; and we don’t have a good split between the two types of customers. That’s a lot of unknowns - which Stocknovice rightly points out.
However whereas it is possible that the Cloud offering could be a Fastly in the making, it is also very possible that it is a Snowflake in the making. Snowflake has some similarities to the Confluent Cloud offering - it spans all 3 cloud providers, it is usage based, it is fully managed, and it gives customers - typically large ones - access to a fully managed next gen database. Or at least that’s my non-techie opinion. Would love to hear more tech-savvy people’s views here. And if it is a Snowflake in the making - fuelled by the Cloud offering - this could be a very good time to get in relatively early.
Anyhow, if we assume that the reason for the relatively slow customer growth can be explained by a bit of a hiring freeze and/or seasonality, then focusing on Confluent Cloud could hold the key to understanding where continued/accelerating hypergrowth could come from.
They had the following to say about Cloud (slide 39):
? November 2017: General availability of Confluent Cloud
? September 2019: 50% of all customers on Confluent Cloud (includes self-serve, pay-as- you-go customers)
? August 2020: Confluent Cloud available through the marketplaces of the three leading cloud providers
→ So it’s a very recent product. It also sounds to me that they are enabling existing Platform customers on Cloud (50% on in Sept 2019) and then customers are increasingly using Cloud in stead of Platform. It also looks like Aug 2020 is important - and recent - given the availability in all 3 cloud marketplaces.
So what could Q3 2022 look like if we assume that 200%+ growth in Cloud can continue (while, granted most of it will come from existing customers)?
We know the split and the growth of the 3 components of revenue, so let’s assume the following for next year Q3 yoy and see where that gets us (Q3’21 → Q3’22e):
Platform 40% yoy → 35% yoy (est)
Cloud 245% yoy → 200% yoy (est)
Services 45% yoy → 40% yoy (est)
Applying the splits they gave us and the above estimated growth rates will give the following for the last 2 Q3’s and next year Q3e.
**$m Q3'20 Q3'21 Q3'22e 21yoy% 22(e)yoy%**
Platf 47 66 89 40% 35%
Cloud 8 27 80 245% 200%
Serv 7 10 14 45% 40%
**Total 62 103 183 67% 78%**
So if Cloud can continue at >200% growth and the other components decelerate somewhat, Cloud will be on a par with Platform a year from now, and will contribute sufficiently to accelerate revenue growth from 67% yoy this year Q3 to 78% yoy next year Q3.
Given the strong growth in their very large (>$1m) customers of 90% yoy as well as the examples they give in the deck (slide 22) - all huge companies expanding fast but with relatively modest expenditures still - it seems fair to assume that growing much more within these customers is quite possible and feasible (again comparing to the likes of Snowflake, and not Fastly) and won’t necessarily require a deluge of new customers signing up but rather some larger customers.
So while I agree there are some clear gaps in what we know of the customer dynamics, it seems that the Cloud offering, judging by revenue growth, is a huge success, likely to remain so and also likely to become the main product in time.
Accordingly I took a starter position.