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Confluent Inc. (CFLT) is a tech company involved in designing and developing a data software platform that lets businesses derive value from streaming data. Founded by the original Apache Kafka creators, Confluent provides customers with cloud native solutions that include encryption, e-commerce, financial services, fraud detection, the Internet of Things (IoT), customer 360, Azure hybrid streaming, and more.
Its list of customers ranges across the U.S. and Europe, including big names from the retail, healthcare, banking, automotive, and manufacturing industries - including Walmart (WMT), Instacart (CART), Expedia (EXPE), Intel (INTC), to name a few.
Valued at $6.97 billion by market cap, CFLT is down 37% from its March highs, and the software stock is lagging the broader market with a YTD loss of 6.3%. In comparison, the Nasdaq Composite ($NASX) is up 17.3% in 2024.
Confluent's Q2 Tops Wall Street Estimates
On July 31, Confluent announced Q2 earnings results that took Wall Street by surprise, as the tech company delivered better-than-expected results. Revenue for the quarter came in at $235 million, up 24% YoY, and beat analysts' $230.2 million estimate. This surge in revenue was largely due to a jump of 40% in its Confluent Cloud, while subscription revenue delivered 27% growth.
Adjusted earnings rose to $0.06 per share from last year’s break-even result, edging past Wall Street’s $0.05 per share forecast. Gross margin grew to 72.3% from last year’s 69.6%, while the number of customers with annual recurring revenue (ARR) of more than $100,000 jumped 14% annually to 1,306.
“Confluent had a solid second quarter, demonstrated by 40% year-over-year revenue growth for Confluent Cloud and our largest sequential increase in total customer count in two years,” said Jay Kreps, CEO and co-founder.
Additionally, management also issued Q3 guidance for subscription revenue between $233-$234 million, with non-GAAP income expected at $0.05 per share.
JPMorgan Upgrades Confluent
Analysts have gotten more bullish on Confluent recently, with the consensus rating on the stock now at “Strong Buy,” up from “Moderate Buy” one month ago. There are a total of 30 analysts tracking the stock, and 21 have a “Strong Buy” rating, 2 have a “Moderate Buy” rating, 6 have a “Hold” rating, and 1 has a “Moderate Sell” rating.
Just last week, brokerage firm JPMorgan Chase (JPM) upgraded the stock from “Neutral” to “Overweight,” with a price target of $25. In a note, analyst Pinjalim Bora cited "the organizational resilience over the last couple of quarters, with no discernible disruption, in addition to the recent valuation reset driven by the choppy macro environment" as a catalyst behind the upgrade.
Additionally, the latest Confluent survey revealed that its existing customers were looking to increase their spending at an average 20% CAGR over the next three years.
“Given all the growth unlocks coming online over the next year, we think there is a high likelihood for the overall growth glidepath to inflect higher, toward at least a mid-to-high 20s% level, sometime in 2025 and into 2026,” said the analyst.
CFLT has a mean price target of $30.57 from analysts, representing a premium of 38.8% to the current market price. With its price/earnings-to-growth (PEG) ratio recently declining to 1.39 - a roughly 28% discount to the tech sector median - now could be an opportune time to scoop up this growth stock to capitalize on its upside potential.
On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
