E-commerce websites, sports betting apps, and even stock trading platforms continuously provide real-time data to their users to create live experiences. That requires a specialized technology called data streaming, and Confluent (NASDAQ: CFLT) is a leading supplier.
The demand for data streaming will only grow over time, especially as more and more companies adopt artificial intelligence (AI), which is a brand new opportunity for the industry. In fact, Confluent believes its addressable market could reach $100 billion next year, and based on the company’s current revenue, it has barely scratched the surface of that opportunity.
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Confluent stock is trading 72% below its all-time high, which was achieved during the 2021 tech frenzy. It was relatively overvalued at the time, but the majority of analysts followed suit The Wall Street Journal have now awarded it the highest possible Buy rating. This is why investors may want to follow suit.
Data streaming may sound complicated, but here’s a simple analogy: Many years ago, consumers would visit a video store to rent a movie, and then go home to watch it with their DVD player. Video streaming platforms such as Netflix have eliminated all that hardware by using the Internet to “beam” movies on demand directly to your television.
Data streaming is conceptually similar. Years ago, companies would store their valuable data on on-site physical servers and come back to analyze it at a later time. Today, companies store their data in centralized data centers (operated by tech giants such as Amazon) for a fraction of the cost. Data streaming technology allows them to record, process and analyze their data in real time.
It has a number of use cases that I highlighted earlier. Retail giant WalmartFor example, Confluent uses it to connect its physical and online stores so it can track its inventory in real time. When a product is sold in any location, that inventory information is updated immediately. That means that when Walmart shows a product as “in stock” on its online store, customers can rest assured that it is true.
Data streaming is also critical in the world of AI, as applications such as chatbots and virtual assistants need to instantly record, analyze and interpret user prompts and then provide accurate responses. With Confluent, companies can leverage their real-time data streams and integrate them with large language models (LLMs) from leading startups like OpenAI to create unique AI applications.
Here’s a practical example. A chatbot like ChatGPT can probably tell you how much it costs to take a surfboard on the plane, because that information can be found directly on the Internet. However, it cannot give you specific information about your flight (such as whether it may be delayed).
An airline can use Confluent to create data pipelines with real-time information about all its flights and passengers, and plug it directly into an AI chatbot on its website. This allows passengers to access everything they want to know with a simple prompt. It could also save the airline a lot of money because it reduces the need for human customer service staff.
Confluent generated total revenue of $250.2 million in the third quarter of 2024 (ended September 30), which was a 25% increase from the same period a year ago. This represented an acceleration compared to the second quarter, when turnover grew by 24%.
It also puts the company on track to reach $1 billion in annual revenue for the first time ever. That’s a significant milestone, but as I highlighted at the top, it’s just a fraction of what could be a $100 billion opportunity by 2025.
Two things contributed to the strong result in the third quarter. First, Confluent’s retention rate was 117%, meaning existing customers were spending 17% more money than in the same period last year. Second, the company had a strong quarter in customer acquisition.
Confluent served a total of 5,680 business customers at the end of Q3, an increase of 16% compared to the same period last year. This included 1,346 customers who spent at least $100,000 per year, and 184 customers who spent at least $1 million per year. These figures increased by 14% and 19% respectively.
Confluent could see even more strength in the $1M+ cohort in the near future, as technologies like AI become increasingly embedded in large organizations.
The Wall Street Journal follows 34 analysts covering Confluent stock, and 22 of them have given it the highest possible Buy rating. Four others are in the overweight (bullish) camp, and seven recommend holding. Although one analyst has given Confluent an underweight (bearish) rating, none recommend immediate selling.
Confluent shares may be down 72% from their 2021 peak, but the company has consistently grown its revenue every year since, resulting in a very attractive valuation.
The stock is trading at a price-to-sales ratio (P/S) of just 9.1, which is close to its cheapest level since the company went public three years ago. That price-earnings ratio is also 48% below the average of 17.5:
Based on the combination of Confluent’s valuation, solid revenue growth, massive opportunity, and Wall Street’s bullish consensus, this could be a good time for investors to buy the stock.
Consider the following before purchasing shares in Confluent:
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Amazon, Netflix and Walmart. The Motley Fool recommends Confluent. The Motley Fool has a disclosure policy.
1 Unstoppable Stock Dropped 72% to Buy Hand Over Fist, According to Wall Street, Originally Published by The Motley Fool
