1 Unstoppable Stock Down 79% to Buy Hand Over Fist, According to Wall Street

Confluent (CFLT 2.01%) is one of the leading developers of data streaming technologies that power many of our online experiences. Stock brokerage platforms use it to provide live price data directly to customers, and e-commerce websites use it to provide buyers with real-time inventory information.

As more of our daily lives migrate to the digital age, the demand for data streaming will increase. 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 shares are trading 79% below their all-time high set during the tech frenzy of 2021. It was relatively overvalued at the time, but most analysts watched The Wall Street Journal they have now assigned it the highest possible buy rating. Here’s why investors may want to follow suit.

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The data streaming opportunity is expanding

Apache Kafka is a widely used open-source data streaming platform created by the founders of Confluent. It enables businesses to ingest, process and analyze data in real-time, helping them create live customer experiences. Confluent was built to enhance Kafka’s capabilities.

Confluent Cloud, for example, makes Kafka native to the cloud, which removes the need for companies to manage their own servers and infrastructure and makes the data streaming tool much 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 are empty, which is especially useful for its most popular products. Thus, customers always find what they need when they enter any location.

Since data is the nectar of artificial intelligence (AI) models, Confluent is becoming an increasingly important tool in this emerging industry as well. AI applications must ingest, analyze and interpret user requests instantly to provide accurate responses. In addition, the underlying model must immediately absorb new data as it becomes available and react accurately to it.

As we know, the Confluent platform can facilitate real-time data ingestion, but it can also help developers build data pipelines capable of working at scale while maintaining lightning-fast throughput. In fact, according to Confluent’s Streaming Data 2024 report, which surveyed more than 4,100 IT professionals, 90% of respondents said streaming data platforms will lead to more development and innovation in the AI ​​industry.

Confluent’s revenue is growing rapidly, driven by high-spending customers

Confluent generated total revenue of $235 million in Q2, up 24.1% from the year-ago period and above management’s guidance of $229.5 million. This included a 40% increase in Confluent Cloud revenue (for cloud-based customers), which now accounts for 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% more money compared to a year ago. Second, the company experienced strong growth in acquiring new customers.

At the end of the second quarter, Confluent had 5,440 total customers, an increase of 13%. However, it had 1,306 customers spending at least $100,000 a year, a 14 percent increase, and 177 customers spending at least $1 million a year, a 20 percent jump.

Confluent also improved its bottom line. The company carefully managed its costs during the quarter, increasing its total operating expenses by just 11%. It still lost $89.9 million, but that was less than the $103.4 million net loss in the year-ago quarter.

On a non-GAAP (generally accepted accounting principles) basis, which excludes one-time and non-cash expenses, Confluent actually posted a profit of $20.5 million, a solid improvement over its profitability result a year ago.

Wall Street is bullish on Confluent stock

The Wall Street Journal tracks 33 analysts covering Confluent shares, and 20 of them have given it the highest possible buy rating. Another four analysts are in the overweight (bullish) camp, and eight recommend holding. Although one analyst has assigned an underweight (underweight) rating to Confluent’s stock, none are recommending an outright sell.

Analysts have an average price target of $31.13, representing a 57% upside to where the stock is trading today.

In the Confluent survey I referenced earlier, 86% of respondents ranked data flow as a strategic or important priority for IT investments this year. Additionally, 84% of respondents said they had double the experience 10 times return on investment in data streaming, so it’s no wonder companies are eager to put money behind the technology.

Overall, Confluent says the addressable market for streaming data is worth $60 billion right now, and based on the company’s current revenue, it’s barely scratched the surface of the opportunity.

When Confluent stock hit an all-time high in 2021, it was trading at a price-to-sales (P/S) ratio of nearly 60, which was incredibly expensive and, frankly, unsustainable. Thanks to the company’s declining stock price and robust revenue growth since then, it now trades at a P/E ratio of just 7.1. This is close to the cheapest level in Confluent’s history as a public company.

For all the reasons we’ve outlined, now could be a great time for investors to buy into the Confluent story.