Why Confluent Stock Is Skyrocketing Today

Shares of Confluent (NASDAQ: CFLT) are seeing explosive gains in Wednesday's trading. The data streaming specialist's share price was up 20% as of 11:45 a.m. ET today. Meanwhile, the S&P 500 index was down 0.7%, and the Nasdaq Composite index was down 0.4%.

Confluent published its fourth-quarter results after the market closed yesterday and reported sales and earnings for the period that beat Wall Street's expectations. The company also announced some new partnerships that appear to have investors excited.

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Confluent stock rockets higher on Q4 beats and partnership news

Confluent posted adjusted earnings per share (EPS) of $0.09 on sales of $261.2 million in the fourth quarter, beating the average analyst estimate's call for per-share earnings of $0.06 on sales of $256.9 million. Revenue in the period was up 22.5% year over year, and EPS came in at the same level as last year's quarter.

Subscription revenue jumped 24% compared to the prior-year period, to $251 million, and sales for Confluent cloud increased 38% to hit $138 million. The company closed out the quarter with 1,381 customers generating at least $100,000 in annual recurring revenue, and management said that it was continuing to see strong demand related to artificial intelligence (AI).

Besides the fourth-quarter beats, management announced that it had entered into a new partnership with Databricks, a leading player in the data-warehousing, AI, and analytics space. The deal will see Confluent's data streaming platform paired with Databricks' Data Intelligence Platform to help users leverage real-time data and AI to generate actionable insights.

Confluent also announced that it had formed a partnership with Jio Platforms to accelerate generative AI in India. Confluent Cloud will be included on Jio Cloud Services and bring data streaming capabilities to the network.

What's next for Confluent?

For the first quarter, management is guiding for sales between $253 million and $254 million. If the company were to hit the midpoint of its guidance, it would mean year-over-year sales growth of roughly 17%.

It also said that it expected adjusted EPS for the period between $0.06 and $0.07; the average analyst estimate calls for $0.06.

For the full fiscal year, Confluence expects sales between $1.117 billion and $1.121 billion, suggesting growth of roughly 16%. The company guided for annual adjusted EPS of $0.35, which was in line with the average Wall Street target.

With today's gains, Confluent is now valued at $11.8 billion and trades at approximately 104.5 times this year's expected earnings. The company's growth-dependent valuation suggests risk at current pricing, but it's possible that profit margins will improve substantially as the business scales up.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Confluent. The Motley Fool has a disclosure policy.