Technology stocks have gotten off to a steady start in 2024, which is evident from the 6% gain clocked by the Nasdaq-100 in the first weeks of the year.
According to brokerage firm Capex.com, the Nasdaq-100 has historically risen 24% on average in the year following one in which it rose 40% or more. After a gain of 54% last year, that suggests the tech-focused index could have another solid run in 2024.
Of course, it would be unwise to bet the Nasdaq will indeed rise 24% this year based on those historical trends alone. However, given that the Federal Reserve expects to slash interest rates three times this year thanks to cooling inflation, there is mounting evidence the Nasdaq will head even higher as the year progresses.
That's why now would be a good time to buy Confluent (CFLT 2.98%). This Nasdaq stock could go on a terrific bull run following the release of its latest earnings report, which has sent its shares flying.
Let's look at the reasons why investors would do well to buy shares of Confluent today.
Confluent's solid results and outlook could send the stock soaring
Confluent provides a cloud-based platform for users to connect and process their data in real time. Shares of the data streaming provider have shot up a whopping 31% following the release of the company's fourth-quarter results on Feb. 7 as it beat Wall Street's expectations and delivered robust guidance for 2024.
Confluent grew full-year revenue 33% to $777 million. What's more, the company posted a non-GAAP profit of $0.04 per share for the year as compared to a loss of $0.58 per share in 2022. On a GAAP basis, Confluent reduced its loss per share from $1.62 to $1.47 over the same period.
The company's impressive performance can be attributed to its growing customer base, as well as their rising spending. More specifically, Confluent ended 2023 with 4,960 customers, up from 4,530 customers in the year-ago period. Meanwhile, the number of customers with annual recurring revenue (ARR) of at least $100,000 jumped 21%. Customers with at least $1 million in ARR jumped at an even faster pace of 24%.
The improving customer spending rubbed off positively on Confluent's margins as well. Its non-GAAP gross margin increased 4.5 percentage points to 77.5% last quarter. It's worth noting that Confluent customers tend to spend more money on its services over time. For example, an online job site ramped up its spending with the company from just $600,000 in the first quarter of 2021 to $13.5 million last quarter.
So the company's existing customer base is going to be a key growth driver going forward. But at the same time, investors should note Confluent expects its total addressable market to grow from $60 billion in 2022 to $100 billion in 2025.
Its not surprising then to see management is guiding for revenue to jump 22% to $950 million in 2024, exceeding the consensus estimate of $939 million. Even better, Confluent expects adjusted earnings per share to more than quadruple to $0.17.
The company's growth is here to stay
Consensus analyst estimates indicate Confluent is set to deliver healthy levels of revenue and earnings growth in 2024 and beyond:
| Year | Revenue estimate (in millions) |
YOY change | Earnings per share estimate | YOY change |
|---|---|---|---|---|
| 2024 | $950 | 22% | $0.18 | 350% |
| 2025 | $1,190 | 25% | $0.34 | 89% |
| 2026 | $1,493 | 25% | $0.53 | 56% |
Data source: YCharts. YOY = year over year.
Additionally, Confluent's platform is now witnessing adoption by customers looking to develop generative AI applications, including OpenAI, according to the recent earnings call. That could give its growth another shot in the arm.
Data by YCharts.
Despite the recent rally, Confluent stock is still down 66% from its all-time high. And as revenue rises, the stock's price-to-sales multiple has been trending downward. With strong growth in the cards, investors should buy Confluent before the stock's rally gains more momentum.
