Confluent (CFLT 2.01%) is a leading developer of data streaming technologies that power many of our online experiences. Stock brokerage platforms use them to deliver live pricing data directly to their customers, and e-commerce websites use them to provide real-time inventory information to shoppers.

As more and more aspects of our daily lives move into the digital age, the demand for data streaming will only continue to grow. Confluent just announced its financial results for the second quarter of 2024 (which ended June 30), and the company’s strong revenue growth reflected this trend.

Confluent stock is trading 79% below its all-time high reached during the tech hype in 2021. It was relatively overvalued at the time, but the majority of The Wall Street Journal have now given it the highest possible buy recommendation. Here you can find out why investors should follow their example.

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The possibilities of data streaming are expanding

Apache Kafka is a widely used open source data streaming platform developed by the founders of Confluent. It enables companies to ingest, process and analyze data in real time, helping them create live experiences for customers. Confluent was developed to extend the capabilities of Kafka.

Confluent Cloud, for example, makes Kafka cloud-native, so that companies no longer have to manage their own servers and infrastructure and the data streaming tool becomes significantly more scalable.

Walmart uses Confluent to connect all of its physical and online stores for real-time inventory management. This allows the retail giant to restock its shelves before they run out, which is especially useful for its most popular products, ensuring that customers always find what they need when they walk into a store.

Since data is the foundation of artificial intelligence (AI) models, Confluent is also becoming an increasingly important tool in this emerging industry. AI applications must instantly ingest, analyze, and interpret user input to provide accurate answers. In addition, the underlying model must ingest new data as soon as it is available and respond to it accurately.

As we know, Confluent’s platform can facilitate real-time data ingestion, but it can also help developers build data pipelines that can operate at scale while maintaining lightning-fast throughput. According to Confluent’s 2024 Data Streaming Report, which surveyed over 4,100 IT professionals, 90% of respondents said data streaming platforms will lead to more development and innovation in the AI ​​industry.

Confluent’s revenue is growing rapidly, led by high-spending customers

Confluent generated total revenue of $235 million in the second quarter, up 24.1% from the year-ago period and above management’s guidance of $229.5 million. This included 40% growth in Confluent Cloud revenue (for cloud-based customers), which now accounts for half of the company’s total revenue.

Two things contributed to Confluent’s strong results. First, the net revenue retention rate was 118%, meaning existing customers spent 18% more money than the previous year. Second, the company saw strong growth in new customer acquisitions.

At the end of the second quarter, Confluent had 5,440 total customers, an increase of 13%. However, 1,306 customers were spending at least $100,000 per year, representing growth of 14%, and 177 customers were spending at least $1 million per year, representing growth of 20%.

Confluent also improved its bottom line. The company carefully managed its costs during the quarter, increasing its total operating expenses by only 11%. It still lost $89.9 million on the bottom line, but that was less than the $103.4 million net loss in the year-ago quarter.

On a non-GAAP (generally accepted accounting principles) basis, which excludes one-time and non-cash expenses, Confluent actually posted a profit of $20.5 million, a significant improvement over the break-even result of the previous year.

Wall Street is optimistic about Confluent shares

The Wall Street Journal tracks 33 analysts covering Confluent stock, and 20 of them have given it the highest possible buy recommendation. Another four analysts are in the overweight (bullish) camp and eight recommend holding the stock. Although one analyst has given Confluent stock an underweight (bearish) rating, none recommend selling outright.

The average analyst price target is $31.13, representing an upside of 57% from today’s share price.

In the Confluent survey I referred to earlier, 86% of respondents considered data streaming a strategic or important priority for IT investments this year. In addition, 84% of respondents said they were investing twice as much 10x returns on their investments in data streaming. So it’s no surprise that companies are keen to invest money in this technology.

Overall, Confluent estimates that the addressable market for data streaming is currently worth a whopping $60 billion. And based on the company’s current revenue, it hasn’t even come close to reaching that potential.

When Confluent stock hit its all-time high in 2021, it traded at a price-to-sales (P/S) ratio of nearly 60, which was incredibly expensive and, frankly, unsustainable. Thanks to the share price decline and the company’s strong revenue growth since then, it now trades at a P/S ratio of just 7.1, nearly the lowest level in Confluent’s history as a public company.

For all the reasons mentioned, now could be a good time for investors to get into the Confluent story.