KEY POINTS

  • Confluent is a company that provides data analysis in real-time, ultimately increasing revenue and reducing expenses.
  • In the second quarter, the number of customers spending $1 million or more yearly increased by 53%.
  • While other tech companies are reducing their revenue expectations for 2022, this company has increased its guidance twice.

2002 has been difficult for the technology market, and finding the bargain growth stock you need to buy has been challenging. A year ago, if a company’s stock value halved, it would’ve been indicative of severe internal struggles. But now, in 2022, with the current economic climate being so tricky, this occurrence has become more common. But, again, this reflects a loss of investors’ confidence rather than anything else.

As inflation and interest rates continue to climb, personal spending has decreased, while many businesses have faced slower growth. However, not all companies have been adversely affected; some that provide services to other businesses instead of consumers have thrived this year.

One example of these stocks is Confluent (NASDAQ:CFLT). Although its stock has drastically declined from previous highs, this data specialist company has twice raised its 2022 revenue guidance. As a result, this could be an excellent opportunity to invest for the long term.

The future of data streaming

If you are looking for a powerful data streaming platform, look no further than Apache Kafka. 80% of Fortune 100 companies use Apache Kafka, which is free and open-source. Confluent’s platform makes it even easier to use, expand, and scale it. Data streaming is in high demand due to its many applications, from improving the consumer experience to increasing business efficiency.

As cloud-computing technology advances, companies can offer real-time experiences to consumers via digital devices. For example, a sports betting agency has to be able to calculate and deliver live odds quickly to keep customers from leaving the platform. This is where data streaming comes in, and Confluent is the technology that makes it all possible.

Amway, the world’s largest direct-selling company, has used Confluent to avoid millions of dollars in cost overruns. Rather than storing and processing data in small batches, Amway now streams data in real time. That allows the business to pivot much more quickly and efficiently. This change has saved money and boosted revenue for Amway overall.

The more data a company can collect on its customers’ interactions, the faster it can turn that information into valuable insights and improve its operations.

Defying economic weakness

Amidst the current economic slowdown, many high-growth technology companies have slashed their annual sales guidance. However, Confluent has twice raised its 2022 full-year revenue projections and now expects to generate $569 million (at the midpoint). If it hits this mark, it will have experienced a compound annual growth rate of 56% since 2019.

Confluent’s high-spending customers drive a significant portion of the company’s growth. In Q2, 857 customers brought in $100,000 annually, while 107 had recurrent revenue exceeding $1 million. Both groups saw a year-over-year increase of 39% and 53%, respectively.

As a result, Confluent’s remaining performance obligations (RPOs) increased by 81% to $591 million. Since RPOs turning into revenue is expected to happen, it implies that the company still has a lot of sales growth momentum.

Why buy Confluent

Rising interest rates this year have made investors more skittish about backing unprofitable tech companies. Most loss-making tech businesses’ only negotiating strength is growth. So some investors put up with operating losses on the gamble that the company will soon acquire customers and start making money. But when growth begins to hiccup, those same investors often jump ship.

Three-fourths of Confluent’s stock value has decreased since late last year. As a result, the company lost $231 million in the first six months of 2022. That loss is in addition to the $343 million loss from 2021.

Even though Confluent is struggling in some ways, it’s still snowballing. In addition, its dollar-based net retention rate of 130% suggests that each customer it acquires could be 30% more valuable every year. This discovery justifies for Confluent to keep investing money into growth.

Also, the company has approximately $2 billion in cash and assets it can quickly convert, so it can afford to operate at a loss for now without having to prioritize profitability.

The most crucial aspect, however, is that the need for Confluent’s data-streaming services will only grow as people and companies want more real-time experiences. That could be sufficient to maintain Confluent stock in the long run, notably if it keeps reeling in high-paying customers at its current rate.

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