Confluent (NASDAQ: CFLT) is a number one developer of information 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 data to consumers.
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 robust income development mirrored that development.
Confluent inventory is buying and selling 79% beneath 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 attainable purchase score. This is why traders may need to observe their lead.
The info 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 patrons. 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 very 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 turning into an more and more essential 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 in new information because it turns into obtainable 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. In truth, 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 improvement and innovation within the AI business.
Confluent’s income is rising rapidly, led by high-spending clients
Confluent generated $235 million in complete income throughout Q2, a 24.1% improve from the year-ago interval and above administration’s steerage of $229.5 million. That included 40% development 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 robust end result. First, it had a web income retention price of 118%, which meant present clients had been spending 18% more cash in comparison with a yr in the past. Second, the corporate delivered robust development in new buyer acquisition.
On the finish of Q2, Confluent had 5,440 complete clients, which was a 13% improve. Nonetheless, it had 1,306 clients spending a minimum of $100,000 per yr, representing 14% development, and 177 clients spending a minimum of $1 million per yr, which was a 20% soar.
Confluent additionally improved its backside line. The corporate managed its prices fastidiously in the course of the quarter, rising its total 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 (usually 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 end result a yr 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 attainable purchase score. An extra 4 analysts are within the chubby (bullish) camp, and eight suggest holding. Though one analyst has assigned Confluent inventory an underweight (bearish) score, none suggest outright promoting.
The analysts have a mean value goal of $31.13, representing an upside of 57% from the place the inventory trades immediately.
Within the Confluent survey I referenced earlier, 86% of respondents seen information streaming as a strategic or essential precedence for IT funding this yr. 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.
General, Confluent says the addressable marketplace for information streaming is price a whopping $60 billion proper now, and primarily based 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. Because of the decline in its inventory value and the corporate’s sturdy income development since then, it now trades at a P/S ratio of simply 7.1. That is close to the most cost effective stage 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 traders 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 accordance with Wall Avenue was initially revealed by The Motley Idiot
