Is Confluent a buy? | The motley fool
Businesses are managing more and more data as part of their day-to-day operations, and that shouldn’t be slowing down anytime soon. Many of these companies cannot handle the large amounts of data they receive, so they use databases to store everything.
While it is relatively easy to configure a database to store data securely, it is very difficult to spot key information in that data until it is retrieved and analyzed, which can take time. time. And when that data needs to be analyzed and recognized in real time, simply moving data into databases is not enough.
It’s here that Confluence (NASDAQ: CFLT) join the game.
Confluent provides a platform that enables customers to process data in real time, identifying key information that needs to be acted on now. It’s a solid business plan with real potential for growth, but is the company performing well enough to justify an investment in its shares? Let’s learn a little more and see if we can find the answer.
Real-time data access
Confluent wants to “put data in motion” to process it in real time. Confluent’s services can be extremely important to a bank, for example. If the data comes across a potential fraud, the bank wants to recognize it and take a closer look now, do not store it until it can be analyzed days or even weeks later. With Confluent, banks are better able to do just that, which is potentially invaluable to business operations.
Confluent is built on Apache Kafka, an open-source distributed event delivery platform used by thousands of businesses for high-performance data pipelines. Kafka software has been widely adopted by large corporations, and around 80% of Fortune 100 companies use Kafka. Since Confluent’s target customers already manage their data on Kafka, it can be easy to attract customers who prefer to outsource the management of this data processing and analysis.
It’s also important to note that the founders of Confluent were also the founders of Kafka. In 2014, Confluent founders Jay Kreps, Jun Rao, and Neha Narkede built Apache Kafka, and now they’re using Confluent to capitalize on their open source creation. This means that Confluent is headed by innovative and visionary leaders, but it also suggests that the company has a real idea of how best to use this open source platform.
Confluent has become the benchmark for real-time data management and has thus attracted renowned clients. Confluent provides services to various industries, ranging from Pay Pal in the payment area for Walmart in the retail sector. Customers appear satisfied with the services they get: Confluent’s net retention rate exceeded 130% in the third quarter of 2021.
Massive importance leads to massive growth
Confluent’s has grown its revenue sequentially every quarter since the fourth quarter of 2019. It reached $ 103 million in revenue in the third quarter of 2021, a jump of 68% from the previous year’s quarter. The latest number of customers now exceeds 2,500, and 664 each spend more than $ 100,000 per year.
Confluent’s profitability is not as impressive. The company lost $ 96 million in the third quarter, representing 94% of its revenue. Additionally, the company’s free cash flow is negative, losing $ 20.5 million in free cash flow in the third quarter alone. On the bright side, its loss as a percentage of revenue declined both year over year and sequentially, from 224% of revenue and 99% of revenue respectively.
With a valuation of 49 times the turnover, the market takes little account of the company’s net losses and seems to focus on its strong growth potential. This means the company is priced to perfection, and if the company fails to meet the high standards of high growth tech investors, the stock price could take a hit.
There is an explanation for Confluent’s massive net loss. The company is focused on growth and expansion as the industry expects tremendous growth over the next three years. Confluent’s total addressable market is expected to grow at a compound annual growth rate of 22% through 2024 to reach $ 91 billion.
Confluent is targeting revenue of $ 377 million for 2021, which represents 60% growth over 2020. If the company can continue to add customers and further integrate them into Confluent, it has good chances of maintaining its leading position as real-time data analytics. leader.
If you are looking to invest, just be aware that this stock is volatile. For investors who manage a concentrated portfolio or who do not wish to hold this company for five years or more, it may be better to look to other companies. However, for long-term investors with a diversified portfolio, it may be worth adding a small position. This company has a lot of growth potential, and if it can achieve high penetration now, investors could be handsomely rewarded in a few years.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.