Confluent (NASDAQ: CFLT) is a primary developer of data streaming technologies that power a number of our online experiences. Stock brokerage platforms use it to feed live pricing data on to clients, and e-commerce websites use it to supply real-time inventory information to shoppers.
As more of our regularly lives migrate into the digital age, the demand for data streaming will only grow. Confluent just reported its financial results for the second quarter of 2024 (ended June 30), and the company’s strong revenue growth reflected that trend.
Confluent stock is trading 79% below its all-time high, set through the tech frenzy in 2021. It was relatively overvalued back then, however the overwhelming majority of analysts tracked by The Wall Street Journal have now assigned it the most effective possible buy rating. Here’s why investors might want to follow their lead.
The data streaming opportunity is expanding
Apache Kafka is a widely used open-source data streaming platform created by Confluent’s founders. It allows businesses to ingest, process, and analyze data in real time, helping them create live experiences for purchasers. Confluent was built to spice up Kafka’s capabilities.
Confluent Cloud, as an illustration, makes Kafka cloud-native, which eliminates the need for businesses to manage their very own servers and infrastructure and makes the knowledge streaming tool far more scalable.
Walmart uses Confluent to connect all its physical and online stores for real-time inventory management. It allows the retail giant to restock its shelves before they run bare, which is especially useful for its hottest products. That ensures customers in any respect times find what they need after they walk into any location.
Since data is the nectar of artificial intelligence (AI) models, Confluent is becoming an increasingly vital tool in that emerging industry, too. AI applications must immediately ingest, analyze, and interpret user prompts to deliver accurate responses. Plus, the underlying model has to immediately absorb latest data since it becomes available and react to it accurately.
As everyone knows, Confluent’s platform can facilitate real-time data ingestion, but it surely may additionally help developers construct data pipelines in a position to operating at scale while maintaining lightning-fast throughput. In actual fact, based on Confluent’s 2024 data streaming report, which surveyed over 4,100 IT specialists, 90% of respondents said data streaming platforms will end in more development and innovation throughout the AI industry.
Confluent’s revenue is growing quickly, led by high-spending customers
Confluent generated $235 million in total revenue during Q2, a 24.1% increase from the year-ago period and above management’s guidance of $229.5 million. That included 40% growth in Confluent Cloud revenue (for cloud-based customers), which now makes up half of the company’s total revenue.
Two things contributed to Confluent’s strong result. First, it had a net revenue retention rate of 118%, which meant existing customers were spending 18% additional cash compared with a 12 months ago. Second, the company delivered strong growth in latest customer acquisition.
At the highest of Q2, Confluent had 5,440 total customers, which was a 13% increase. Nevertheless, it had 1,306 customers spending a minimum of $100,000 per 12 months, representing 14% growth, and 177 customers spending a minimum of $1 million per 12 months, which was a 20% jump.
Confluent also improved its bottom line. The company managed its costs fastidiously through the quarter, increasing its overall operating expenses by just 11%. It still lost $89.9 million on the underside line, but that was lower than its $103.4 million net loss from the year-ago quarter.
On a non-GAAP (generally accepted accounting principles) basis, which strips out one-off and non-cash expenses, Confluent actually delivered a profit of $20.5 million, a solid improvement from its breakeven result a 12 months ago.
Wall Street is bullish on Confluent stock
The Wall Street Journal tracks 33 analysts covering Confluent stock, and 20 of them have given it the most effective possible buy rating. An additional 4 analysts are throughout the obese (bullish) camp, and eight recommend holding. Although one analyst has assigned Confluent stock an underweight (bearish) rating, none recommend outright selling.
The analysts have a median price goal of $31.13, representing an upside of 57% from where the stock trades today.
Throughout the Confluent survey I referenced earlier, 86% of respondents viewed data streaming as a strategic or vital priority for IT investment this 12 months. Plus, 84% of respondents said they’ve experienced twofold to 10-fold returns on their data streaming investments, so it’s no surprise businesses are eager to put money behind the technology.
Overall, Confluent says the addressable marketplace for data streaming is value a whopping $60 billion at once, and based on the company’s current revenue, it has barely scratched the surface of that probability.
When Confluent stock hit its all-time high in 2021, it was trading at a price-to-sales (P/S) ratio of nearly 60, which was incredibly expensive and, quite frankly, unsustainable. Due to the decline in its stock price and the company’s robust revenue growth since then, it now trades at a P/S ratio of just 7.1. That’s near essentially the most inexpensive level in Confluent’s history as a public company.
For all the reasons I’ve highlighted, now could also be a terrific time for investors to buy into the Confluent story.
Do you may have to take a position $1,000 in Confluent at once?
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Confluent and Walmart. The Motley Idiot has a disclosure policy.
1 Unstoppable Stock Down 79% to Buy Hand Over Fist, In response to Wall Street was originally published by The Motley Idiot