It's no secret the stock market is having a tough year. The Nasdaq 100 index, which is home to some of the largest technology stocks in the world, has declined by 35% in 2022, placing it firmly in bear market territory.
Consumers have far less spending power at the moment on account of soaring inflation and rising interest rates, which is hitting the financial results of the corporate sector. But some companies that serve other businesses are outperforming.
Confluent (CFLT) is one of them. Its third-quarter results beat its previous guidance on the top and bottom lines, and there are signs its run of success could continue.
Since Confluent stock is down 76% from its all-time high, here's why this might be a great time to buy in for the long run.
Confluent serves a rapidly growing need
Consumers are constantly demanding more live experiences from their digital technologies. Waiting is no longer an acceptable proposition whether it's entertainment, shopping, banking, or gaming. Thankfully for businesses, there are tools available to help easily deliver those experiences and the Confluent platform is one of them.
Confluent was built to expand and scale the open-source Apache Kafta software, which is used by 75% of the Fortune 500 companies to stream data. The concept of data streaming is powerful, and its list of applications is constantly growing. But if one thing is for sure, it solves some significant challenges that come with cloud-based operations.
Take retail giant Walmart for example, which runs multiple sales channels across its stores and online. To give consumers the most accurate, up-to-date information on whether or not items are in stock, it uses data streaming behind the scenes to create a common inventory that can update in real time as goods move off the shelves. It allows the company to rapidly replenish those products to ensure they're always available, reducing the chance a shopper might turn to a competitor.
Also, building data-streaming pipelines is about to get much easier thanks to Confluent's new Stream Designer tool, which features a drag-and-drop user interface, making the process simpler than ever. This could supercharge adoption particularly among businesses with small technical teams.
Confluent just topped expectations
In the second quarter of 2022, Confluent told investors it expected to generate up to $145 million in revenue during the third quarter (ended Sept. 30). But the company smashed that estimate and generated $152 million instead, representing 48% growth year over year. It was driven by the cloud-based version of the Confluent platform, which grew by a whopping 112%.
The result was so strong it prompted Confluent to raise its full-year revenue guidance for 2022, now estimating it could bring in as much as $580 million (up from $571 million previously). That's a significant adjustment. Keep in mind most technology companies are actually slashing their forecasts in this difficult economic environment.
Confluent also beat its expectations on the bottom line. The company was in the red to the tune of $0.13 per share, but that loss was smaller than the $0.17 loss per share it guided for. Confluent won't be profitable this year because it's still investing heavily in growth -- a strategy that's clearly working -- but it has a rock-solid balance sheet with more than $1.9 billion in cash, equivalents, and short-term investments on hand, so it has plenty of breathing room.
Why Confluent stock is a buy on the dip
Despite Confluent stock sliding by 76% from its all-time high price, investors shouldn't lose faith in its potential to deliver gains in the future. The strength from the third quarter will likely continue, because the company's remaining performance obligations soared by 72% to $664 million. Since these are expected to eventually convert to revenue, it bodes well for Confluent's near-term growth.
Plus, given how critical data streaming has become, large organizations are flocking to the Confluent platform. It had 920 customers with an annual spend of $100,000 or more in Q3, up 39% year over year. And customers are not only sticking around, but they're spending about 30% more with Confluent each passing year based on the company's net revenue retention rate. The commitment to growth is certainly paying off in that context.
If all of that isn't enough, it's worth noting the extremely bullish sentiment toward Confluent stock on Wall Street. According to the 20 analysts tracked by The Wall Street Journal, 11 have given the stock the highest-possible buy rating while nine maintain a hold rating. Not a single one recommends selling. And why would they?
Confluent is growing rapidly during tough times, its platform is bordering on essential for most businesses with a digital presence, and it has a great balance sheet to fund further growth. Now might be a great time for investors to buy in.