Confluent (NASDAQ: CFLT) is a number one developer of knowledge streaming applied sciences that energy a lot of our on-line experiences. Inventory brokerage platforms use it to feed stay pricing information on to purchasers, and e-commerce web sites use it to supply real-time stock info to buyers.
As extra of our on a regular basis lives migrate into the digital age, the demand for information streaming will solely develop. Confluent simply reported its monetary outcomes for the second quarter of 2024 (ended June 30), and the corporate’s sturdy income progress mirrored that pattern.
Confluent inventory is buying and selling 79% under its all-time excessive, set in the course of the tech frenzy in 2021. It was comparatively overvalued again then, however the majority of analysts tracked by The Wall Avenue Journal have now assigned it the very best doable purchase score. This is why buyers would possibly need to comply with their lead.
The information streaming alternative is increasing
Apache Kafka is a broadly used open-source information streaming platform created by Confluent’s founders. It permits companies to ingest, course of, and analyze information in actual time, serving to them create stay experiences for purchasers. Confluent was constructed to reinforce Kafka’s capabilities.
Confluent Cloud, for instance, makes Kafka cloud-native, which eliminates the necessity for companies to handle their very own servers and infrastructure and makes the information streaming device much more scalable.
Walmart makes use of Confluent to attach all its bodily and on-line shops for real-time stock administration. It permits the retail large to restock its cabinets earlier than they run naked, which is particularly helpful for its hottest merchandise. That ensures clients at all times discover what they want once they stroll into any location.
Since information is the nectar of synthetic intelligence (AI) fashions, Confluent is changing into an more and more necessary device in that rising business, too. AI functions should immediately ingest, analyze, and interpret person prompts to ship correct responses. Plus, the underlying mannequin has to instantly take up new information because it turns into out there and react to it precisely.
As we all know, Confluent’s platform can facilitate real-time information ingestion, however it may possibly additionally assist builders construct information pipelines able to working at scale whereas sustaining lightning-fast throughput. The truth is, in line with Confluent’s 2024 information streaming report, which surveyed over 4,100 IT specialists, 90% of respondents stated information streaming platforms will result in extra growth and innovation within the AI business.
Confluent’s income is rising shortly, led by high-spending clients
Confluent generated $235 million in complete income throughout Q2, a 24.1% enhance from the year-ago interval and above administration’s steerage of $229.5 million. That included 40% progress in Confluent Cloud income (for cloud-based clients), which now makes up half of the corporate’s complete income.
Two issues contributed to Confluent’s sturdy outcome. First, it had a web income retention charge of 118%, which meant present clients have been spending 18% extra money in comparison with a 12 months in the past. Second, the corporate delivered sturdy progress in new buyer acquisition.
On the finish of Q2, Confluent had 5,440 complete clients, which was a 13% enhance. Nevertheless, it had 1,306 clients spending a minimum of $100,000 per 12 months, representing 14% progress, and 177 clients spending a minimum of $1 million per 12 months, which was a 20% leap.
Confluent additionally improved its backside line. The corporate managed its prices rigorously in the course of the quarter, rising its general working bills by simply 11%. It nonetheless misplaced $89.9 million on the backside line, however that was lower than its $103.4 million web loss from the year-ago quarter.
On a non-GAAP (typically accepted accounting rules) foundation, which strips out one-off and non-cash bills, Confluent really delivered a revenue of $20.5 million, a strong enchancment from its breakeven outcome a 12 months in the past.
Wall Avenue is bullish on Confluent inventory
The Wall Avenue Journal tracks 33 analysts overlaying Confluent inventory, and 20 of them have given it the very best doable purchase score. An extra 4 analysts are within the obese (bullish) camp, and eight advocate holding. Though one analyst has assigned Confluent inventory an underweight (bearish) score, none advocate outright promoting.
The analysts have a mean value goal of $31.13, representing an upside of 57% from the place the inventory trades at present.
Within the Confluent survey I referenced earlier, 86% of respondents seen information streaming as a strategic or necessary precedence for IT funding this 12 months. Plus, 84% of respondents stated they’ve skilled twofold to 10-fold returns on their information streaming investments, so it is no shock companies are keen to place cash behind the know-how.
Total, Confluent says the addressable marketplace for information streaming is price a whopping $60 billion proper now, and based mostly on the corporate’s present income, it has barely scratched the floor of that chance.
When Confluent inventory hit its all-time excessive in 2021, it was buying and selling at a price-to-sales (P/S) ratio of virtually 60, which was extremely costly and, fairly frankly, unsustainable. Due to the decline in its inventory value and the corporate’s sturdy income progress since then, it now trades at a P/S ratio of simply 7.1. That is close to the most affordable degree in Confluent’s historical past as a public firm.
For all the explanations I’ve highlighted, now is likely to be a good time for buyers to purchase into the Confluent story.
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Anthony Di Pizio has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Confluent and Walmart. The Motley Idiot has a disclosure coverage.
1 Unstoppable Inventory Down 79% to Purchase Hand Over Fist, In line with Wall Avenue was initially revealed by The Motley Idiot
