As Jay discussed earlier, the current macro has increased the misalignment between our subscription-based go-to-market and the new buying behavior of customers, which creates a drag in our consumption growth. We believe our accelerated move to a fully consumption-oriented comp model for Confluent Cloud will turn this drag into a tailwind for our business. Turning now to guidance. For the fourth quarter of 2023, we expect revenue to be in the range of $204 million to $205 million, representing growth of 21% to 22%. Cloud revenue to be approximately $97.5 million, a sequential add of $6 million, representing growth of 43% and accounting for approximately 48% of total revenue based on the midpoint of our guide. Non-GAAP operating margin to be in the range of 0% to 1% and non-GAAP net income per share to be approximately $0.05.
Additionally, we expect the free cash flow margin to be in the range of 0% to 1%. For the full year 2023, we expect revenue to be in the range of $768 million to $769 million, representing growth of 31%, non-GAAP operating margin to be approximately negative 9%, and non-GAAP net loss per share in the range of negative $0.01 to $0.00. Looking ahead, I’d like to provide an early read into our outlook for next year. Our fiscal year ’24 preliminary outlook assumes the impact of a continued volatile macroeconomic and geopolitical environment, the dynamics mentioned earlier for Q4 continuing into 2024, and risk associated with our transformation to a fully consumption-oriented business. If macro were to improve, we would expect to benefit from it, but it is too early to tell.
Given these factors for the full year 2024, we expect revenue to grow approximately 22% year-over-year, non-GAAP operating margin to break even, improving approximately 9 percentage points year-over-year. This is despite a 2- to 3-point headwind associated with our move to a consumption-based sales commission plan, resulting in higher upfront expense recognition. And we expect free cash flow margin to break even. I’d like to highlight a few things about our consumption transformation. Despite potential near-term top line impacts on our fiscal year ’24 outlook, we expect the transformation will enhance our ability to drive durable and efficient growth over both the midterm and long term and will put us in a stronger position to capture our $60 billion market opportunity.
We believe subscription revenue, which captures ACV from Confluent Platform and consumption from Confluent Cloud will be the best indicator of our success. Starting Q1 next year, we will include subscription revenue in our key financial metrics and move our quarterly and annual revenue guidance metric to subscription revenue. And consistent with that, RPO and CRPO will be less relevant as a forward-looking indicator given the greater emphasis on consumption over ACV-based commits for cloud. We expect our non-GAAP operating margin midterm target of 5% to 10% and long-term target of greater than 25% to be firmly intact and for free cash flow margin to continue to trend roughly in line with operating margin. In closing, we are pleased with delivering a solid Q3 in a challenging environment.
Our net and gross retention rates remain strong, reflecting the durability and resiliency of our growth. We remain committed to driving growth and improving profitability while transforming our cloud business to be fully consumption oriented, and we are excited about capturing our market opportunity ahead. Now Jay and I will take your questions.
A – Shane Xie: Thanks, Rohan. To join the Q&A, please raise your hand. And today, our first question will come from Sanjit Singh with Morgan Stanley followed by Deutsche. Sanjit, please go ahead.
Sanjit Singh: I had two, I guess, one for Jay and one for Rohan. Jay, the spending environment hasn’t been particularly great kind of all year. And so, I wanted to get a sense of outside of those two customers that may be a little bit idiosyncratic, like what’s changed in the environment? When did you start to see the change in the quarter? And how much of that would you attribute to macro versus just sales execution?
Jay Kreps: Yes. Yes, it’s a great question. So obviously, the two customers are kind of a significant impact, but particular circumstances in each. I do think we’ve felt kind of pressure on the number of net new software projects that are just getting funded throughout the year, and we’ve talked about that. Kind of building over time, that’s the motivation for this full shift to consumption that I talked about. I think when I think about our execution, there’s always something in one customer or another that could be done better, but the biggest systematic thing is really making sure we’re lining up to drive the adoption in new projects, making sure that we’re attaching to each thing that’s happening. This is something we’ve watched in peer companies and it’s worked really well for them.
And I think just because we’re a younger organization, we’re maybe a year or two behind in that journey. And what we saw over the course of the year is definitely customers adapted to this environment, the combination of pressure on IT budgets, along with the switch in the behavior of our peers has really led people to kind of consume and then commit as it were. And you really want to have then your go-to-market motion focused on the consumption side of things like really driving the adoption and the use cases that becomes extra important. And so, on the execution side, I think that’s absolutely the biggest change we can make. And we’re just very excited about the impact that can have. I mean, obviously, there’s some adjustment period as you go through switching all your internal systems and a number of the different definitions from pipeline to comp, et cetera.
And of course, even adjusting some of the sales motions. But if you think about why we’re doing it, it really is to be able to align that to attaching to the next new project, making sure that that has streaming and Confluent as part of it, making sure that these new components of the data streaming platform, Flink and the connectors and the governance capabilities, making sure that that gets adopted and the customers are really consuming that. That’s far and away the biggest lever we feel like we have to drive additional growth.
Sanjit Singh: Understood. And then Rohan, for you, I guess the question is in terms of your initial view into calendar 2024. I guess my question is that for Q4 of 2023, you’re guiding to 21% to 22% and then for next year, you’re guiding essentially sustained growth? And how did you come up with the 22% number? And do you see any risk or sustained growth going into 2024, given what you’re calling out from a sales force transition perspective, from a macro perspective? Just love a little clarity on how you set up the 2024 guidance.
