Analysts are watching tech stocks like a hawk this earnings season. As a recession looks more likely and inflation remains high, investors believe businesses could pull back their spending. One way to do that is by cutting out specific software products or services.
Confluent (CFLT 4.41%), however, saw almost none of that in the second quarter. Demand for its data-streaming products remained resilient, signaling that the company provides mission-critical products. Shares popped after the impressive second-quarter report — released on Aug. 3 — but the stock is still down over 64% from its all-time high. At this price, you might want to consider buying this stock before it climbs higher over the coming years.
Analysts are watching tech stocks like a hawk this earnings season. As a recession looks more likely and inflation remains high, investors believe businesses could pull back their spending. One way to do that is by cutting out specific software products or services.
Confluent (CFLT 4.41%), however, saw almost none of that in the second quarter. Demand for its data-streaming products remained resilient, signaling that the company provides mission-critical products. Shares popped after the impressive second-quarter report — released on Aug. 3 — but the stock is still down over 64% from its all-time high. At this price, you might want to consider buying this stock before it climbs higher over the coming years.
Confluent saw strong demand despite macroeconomic headwinds
The factors that make Confluent unique weren’t surprises going into this quarter, but they were validated after the company announced healthy adoption despite the macroeconomic headwinds. In the second quarter, revenue soared 58% year over year to $139 million, driven by its net retention rate exceeding 130% for the fifth consecutive quarter.
The company’s cloud-native solution saw the most growth, however. Confluent Cloud revenue soared 139% year over year, accounting for 34% of total revenue versus 22% in the year-ago period. Cloud is quickly becoming the future for Confluent, and it also represented over 50% of new annual contract value bookings during the period.
What might be even more impressive is that Confluent expects this expansion to continue for the rest of the year. Remaining performance obligations jumped 81% year over year, signaling that businesses are planning to spend increasing amounts with the company in the future. Management also expects full-year revenue to reach $569 million (at the midpoint of the range), a 47% jump compared to 2021.
What risks remain
While softening demand might not be a concern right now, what is concerning is the company’s deep losses. Confluent’s second-quarter net loss surpassed $117.6 million, which resulted in a net loss margin of 84%. That said, this is actually an improvement from the year-ago period when its net loss margin was just under 100%.
The company’s cash-generation skills also aren’t anything to write home about. Confluent’s free cash flow burn reached $37 million for the period. This marked another improvement from the prior-year quarter’s $45 million outflow, but it’s worrisome, nonetheless.
On a more positive note, Confluent has almost $2 billion in cash and securities on the balance sheet (with only $1.1 billion in debt) to sustain its operations and investments for some time.
Why Confluent looks appealing now
Confluent is trading at 16.5 times 2022 sales, which is far from a cheap valuation, but it’s looking more and more attractive. Data-focused peers like Datadog, Snowflake, and Cloudflare are all trading above 20 times forward sales estimates, so Confluent stands out as a relative bargain.
What’s more important, however, is that the company is executing. It’s seeing continued adoption in the space, and its clients rely heavily on its services. Confluent is proving to be a necessity for its customers, meaning it could capitalize on its opportunity — one that management believes will be worth $91 billion by 2024. The company’s profitability, while still poor, is moving in the right direction.
Down over 60% from its all-time high, now is a good time to start a small stake in Confluent.
Read Next: America is going mad—is this next?
America is definitely going a little mad…
Some states are threatening to break away. The rich are fleeing. The wealth gap is soaring.
According to a recent article in the New York Times, people are driving more recklessly than ever… and drinking more alcohol than ever too.
And that’s just the beginning…
Altercations on airplanes are now at all-time highs. So are murder rates. And violent crime is soaring across the board. Students are more disruptive than ever. Hate crimes have hit a 12-year high, according to the FBI.
The question of course is:
Where is this all headed… and what’s coming next?
Well, one of the wealthiest and most successful entrepreneurs in America has a very clear answer you’re unlikely to hear anywhere else…
Bill Bonner is a 73-year-old son of a tobacco farmer, who now owns six large properties in South America, Central America, and the U.S… plus three in Europe.
Bonner is also one of the most humble and thoughtful men in the world today. He’s the author of three New York Times bestsellers… and has built several homes with his own hands, using ancient building techniques.
I’m telling you about Bonner today because has just come forward with an important message…
What he calls: His 4th and Final Warning.
It’s worth paying attention to, because Bonner has made 3 other big macro-economic predictions in his career… and each one proved to be exactly right.
Today, Bonner says we are headed towards a very difficult period in the U.S.… one of our most difficult times ever… which will result in something he calls: “America’s Nightmare Winter.”
What does that mean, exactly—and how could it affect you and your money?
Bonner doesn’t claim to have all the answers–but he recently went public with the fascinating analysis, recorded at his 60-acre property overlooking one of Europe’s most beautiful rivers.
He says:
“I believe it falls on someone like me to warn people… clearly… and without distraction.
“I can do this now because I’m too rich to care about money… and too old to care about what anyone says about me.”
And in this analysis, Bonner explains exactly how he believes this difficult period will play out, and even more important: The 4 Steps every American should take right now to prepare.
Get the facts.
Learn how to protect yourself and get a peek inside Bonner’s spectacular European property.
We’ve posted Bonner’s full analysis and his 4 recommended steps on our website.
You can view it free of charge here…
