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Should You Buy Confluent Stock Now?

By Eric Cuka - Jul 14, 2021 at 11:51AM

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Big data is enabling digital transformation in organizations. Is Confluent the right stock to help your portfolio take advantage of this secular growth trend?

Confluent (CFLT -4.62%) is a big data analytics provider that spun off of LinkedIn back in 2014. The technology that supports the Confluent platform is Apache Kafka, an open-source solution that was developed inside LinkedIn, which is owned by Microsoft (MSFT -0.74%). Businesses such as Shopify (SHOP -0.47%), Airbnb (ABNB 2.33%), Cloudflare (NET -4.66%), Datadog (DDOG -2.53%), and many others are powered by Kafka. Confluent's S-1 filing stated, "Our open source roots are a key driver of our go-to-market success. Apache Kafka has become the industry standard for data in motion. It is one of the most successful open source projects, estimated to have been used by over 70% of the Fortune 500."

The company's revenue climbed to $236.8 million last year, which was a 58% increase. However, the company is still not profitable, and it recorded a net loss of nearly $230 million last year. 

The company competes and partners with big names such as Amazon (AMZN -1.44%), Microsoft, and Alphabet's (GOOG -0.69%) (GOOGL -0.72%) Google. Several legacy products from vendors such as Cloudera (CLDR), IBM's (IBM 0.79%) Red Hat, and Oracle (ORCL -0.49%) have also pivoted into Confluent's space. Even smaller companies such as MongoDB (MDB -3.04%), Elastic (ESTC -5.61%), and Databricks, which may go public in 2021, should be mentioned. Without question, competition is fierce in this arena. 

That said, the total addressable market (TAM) for Confluent is over $50 billion. The compounded annual growth rate (CAGR) is expected to grow at 22% through 2024, which would increase the TAM to over $90 billion. Here are the components that make up Confluent's core competencies and TAM:

  1. Analytics and business intelligence
  2. Application infrastructure and middleware
  3. Data integration tools and data quality tools
  4. Database management systems

Confluent completed an IPO in late June. Since then, the stock has rocketed to $58, over 75% above the high end of the initial projected range of $29 to $33. The stock has since retreated to the mid-$40 range, placing an $11-billion-plus market cap on the company. Is Confluent stock a buy now?

Today, I provide a deep-dive analysis of Confluent. I explain what the company is all about, the bull case, the bear case, and my thoughts on the price level I would buy. Please watch the below video for my insights. 

*Stock prices used in the below video were during the trading day of July 13, 2021. The video was published on July 13, 2021.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Eric Cuka owns shares of Airbnb, Inc., Alphabet (A shares), Amazon, Cloudflare, Inc., Datadog, Elastic, Microsoft, MongoDB, and Shopify. The Motley Fool owns shares of and recommends Airbnb, Inc., Alphabet (A shares), Alphabet (C shares), Amazon, Cloudflare, Inc., Datadog, Elastic, Microsoft, MongoDB, and Shopify. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon, long January 2023 $1,140 calls on Shopify, short January 2022 $1,940 calls on Amazon, and short January 2023 $1,160 calls on Shopify. The Motley Fool has a disclosure policyEric is an affiliate of The Motley Fool and may be compensated for promoting its services. If you choose to subscribe through his link, he will earn some extra money that supports his channel. His opinions remain his own and are unaffected by The Motley Fool.

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Stocks Mentioned

Confluent, Inc. Stock Quote
Confluent, Inc.
CFLT
$30.95 (-4.62%) $-1.50
International Business Machines Corporation Stock Quote
International Business Machines Corporation
IBM
$132.54 (0.79%) $1.04
Oracle Corporation Stock Quote
Oracle Corporation
ORCL
$77.16 (-0.49%) $0.38
Microsoft Corporation Stock Quote
Microsoft Corporation
MSFT
$287.02 (-0.74%) $-2.14
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$118.84 (-0.72%) $0.86
Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$140.64 (-1.44%) $-2.05
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$119.82 (-0.69%) $0.83
Shopify Inc. Stock Quote
Shopify Inc.
SHOP
$40.42 (-0.47%) $0.19
Cloudera Stock Quote
Cloudera
CLDR
MongoDB Stock Quote
MongoDB
MDB
$368.76 (-3.04%) $-11.55
Elastic N.V. Stock Quote
Elastic N.V.
ESTC
$83.27 (-5.61%) $-4.95
Cloudflare, Inc. Stock Quote
Cloudflare, Inc.
NET
$74.95 (-4.66%) $-3.66
Datadog, Inc. Stock Quote
Datadog, Inc.
DDOG
$114.78 (-2.53%) $-2.98
Airbnb, Inc. Stock Quote
Airbnb, Inc.
ABNB
$121.50 (2.33%) $2.77

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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