Finding returns -- let alone big ones -- in the throes of a bear market isn't easy. Every stock market sector is in the red in 2022 except energy and utilities; the former owes its gains to high oil and gas prices, and the latter is typically a safe haven for investors during tough times.
One of the worst-performing sectors right now is technology. The Nasdaq-100 tech index is down 23% year to date, and many individual stocks have fared even worse. One in particular, Confluent (CFLT 1.27%), has lost nearly 65% of its value.
But Confluent is a company of the future, and it's growing rapidly with some of the largest organizations in the world seeking its services. Its stock might be down heavily at the moment, but one Wall Street investment bank is betting it could more than double from here.
What Confluent does for businesses
Confluent is a live data streaming platform built specifically to scale the open-source Apache Kafka software, which is used by 80% of Fortune 100 companies. Live data streaming can be a complex concept, so the best way to understand it is to explore how businesses are using it to serve consumers every day.
One of Confluent's most recognizable customers is Walmart. Confluent (with Kafka) helps Walmart ensure its products are always in stock by actively monitoring inventory and supply chains in real time, so replenishment is fast and seamless, in-store and online. Put simply, live data streaming ensures customers can always find what they're looking for at Walmart, leading to higher levels of satisfaction and fewer lost sales.
Another use case is online sports betting companies. It's perfectly fine for a bookmaker to receive data about a live sporting event and calculate odds in the background, but making sure those numbers are delivered to the customer instantly is now absolutely critical. With Confluent's help, betting apps can stream those live odds to all of their users more quickly while still accepting bets in real time, in a reliable manner.
Confluent allows businesses to take all of the complicated data ingestion and analysis they do behind the scenes and deliver a desired result to their customers immediately.
Confluent's revenue is soaring
Large companies like Walmart are flocking to do business with Confluent. In the second quarter of 2022, Confluent had 857 customers spending $100,000 or more annually, a 39% jump compared to the same time last year. But more notably, it had 107 customers spending $1 million or more annually, up a whopping 53% year over year.
Those categories are a subset of Confluent's 4,120 total customers.
These big customer acquisitions are showing up in Confluent's revenue, which grew 58% in the quarter to $139 million. The company also has reason to be very optimistic about the future, because its remaining performance obligations (RPOs) jumped 81% to $591 million. RPOs are expected to convert into revenue eventually, so they hint at accelerating growth on the horizon.
Confluent is investing heavily to expand its business too. In the second quarter, it nearly doubled its research and development costs year over year and spent 54% more on marketing. That led to a net loss of $118 million, but the company does have nearly $2 billion in cash and marketable securities on its balance sheet, so it can afford to be aggressive for a while longer before it has to prioritize profitability.
Wall Street is on board with Confluent stock
Wall Street doesn't always get things right, but in Confluent's case, not a single one of the 18 analysts covering its stock recommend selling it. That's quite a consensus. They're equally split with nine buy ratings and nine hold ratings, which is positive given investors' attitude toward technology stocks this year.
The average price target for Confluent stock among the analysts is $37.75, or 39% higher than where it trades today. But Wall Street investment bank Credit Suisse thinks Confluent could soar to $65 per share over the next 12 to 18 months, which would be an eye-popping 139% gain from here.
Given Confluent stock traded at an all-time high of $94.97 per share in 2021, Credit Suisse's target doesn't appear overly ambitious. And considering the company's revenue and customer growth, it might soar well beyond any analysts' current expectations in the long run.