Confluent (CFLT) is on Track to Start Making Profits as Margins Improve

Stock (Symbol)

Confluent (CFLT)

Stock Price


Data is as of
August 31, 2023
Expected to Report
October 31
Company Description
Confluent, Inc. is engaged in designing data infrastructure to connect the applications, systems, and data layers around a real-time central nervous system.

The Company is focused on developing a category of data infrastructure focused on data in motion for developers and enterprises.

It enables enterprises to deliver customer experiences for their business functions, departments, teams, applications, and data stores to have connectivity.

It is designed to have real-time data from multiple sources streamed across an enterprise for real-time analysis.

Its offering enables organizations to deploy production-ready applications that run across cloud infrastructures and data centers, with features for security and compliance.

Its platform provides the capabilities to fill the structural, operational, and engineering gaps in businesses.

It enables software developers to build their applications to connect data in motion and enables enterprises to make data in motion to everything they do. Source: Refinitiv

Sharek’s Take
David SharekConfluent (CFLT) is on the cusp of becoming profitable. If profits begin to come in, the event could cause the stock to go on a run higher. CFLT had been delivering losses every quarter since its IPO in June 2021. Then last quarter the company broke even wit EPS of $0.00 per share (on a non-GAAP basis). Analysts think profits will be $0.00 next quarter, then $0.05 two quarters from now. I think a profit will be made this quarter as CLFT has been beating estimates. Since comparisons from the year-ago periods are losses, a profit would be recorded as triple-digit revenue growth, a key characteristic top stocks possess. Thus, a profit could cause the stock to make a run higher.

Confluent’s (CFLT) is the heart of “data in motion” which is utilizing data in real time. No waiting for reports to congregate statistics. With Confluent, organizations can see what’s going on as its happening, then immediately react to changes in its business. Confluent builds on the open-source Apache Kafka platform which the company’s founders created for LinkedIn. Kafka is used to build real-time streaming applications. Kafka organizes data into sets of “topics” (such as posts, likes, and comments) which are stored and can be quickly retrieved and analyzed in a large scale (like Facebook). Speed is especially important with fraud detection with credit cards. The company’s main offerings include:

  • Confluent Platform: a self-managed platform with additional features and tools that are not available in the open-source (free) version of Kafka.
  • Confluent Cloud: a cloud-based data streaming service that allows companies to use Kafka without the need for downloading Kafka software or managing it.
  • Immerok: This month, Confluent acquired Immerok. Immerok has developed a fully managed Apache Flink software for customers to stream large amounts of data. Confluent now has a Kafka and a Flink and service available for customers.

Here are some other stats from last qtr:

  • Revenue +36%.
  • Net retention rate was above 130%
  • 140 new net customers, bringing total customers to 4,830 which is 17% higher than a year ago.
  • Customers with $100,000 in annual repeating revenue grew 33% to 1,144 total customers contributing 85% of revenue.
  • Customers with $1 million in annual repeating revenue grew 48% to 147 total customers.
  • Revenue from the U.S. grew 30%.
  • International revenue grew 45%.

CFLT isn’t making profits yet, so I value the stock on a price-to-annual revenue basis. Management attributes losses on restructuring an the cost of acquiring Immerok (source: Investors.com). At $33, the stock sells for 13x 2023 revenue. My Fair Value is 15x, which is $38 for this year and $49 in 2024. That’s 48% upside when we look to next year. Since we are in mid-September now, I want to get ahead of the curve and buy the stock before year-end (and before profitability). CFLT will be purchased for the Growth Portfolio. tomorrow. With revenue expected to climb 32% this year and 28% next year, this company is growing pretty fast considering the slow economy.

One Year Chart
CFLT broke out after it reported earnings 2QtrsAgo. The stock has since turned resistance at $30 into support. Now the stock is building a new base.

No quarterly profits, yet. But profits are expected two quarters from now.

I like that the annual losses have been getting smaller.

There’s not an Est. LTG this quarter, but this figure was 100% last quarter.

Earnings Table
Last qtr, CFLT delivered $0.00 per share, and beat estimates of a $0.16 loss. Revenue grew 36% and beat estimates of 31%.The company’s profit margins are steadily improving. Operating Margin jumped to -9% last quarter from -34% a year ago driven by continued efficiencies, hardware optimizations, and increased server tenancy.

  • Cloud Platform grew 16% and accounted for 49% of total revenues. Confluent Platform revenue growth was led by regulated industries like public sector and financial services.
  • Confluent Cloud revenue grew 78% and accounted for 44% of total revenues and more than half of revenues from annual contracts. Despite being a more recent offering, Confluent Cloud already has over 6x the number of users compared to Confluent Platform. Cloud revenue was driven by higher-than-expected consumption.

Annual Profit Estimates continue to climb higher.

Qtrly profit Estimates are for 138%, 122%, and 999% profit growth starting 2 qtrs from now. For next qtr, analysts think revenue will grow 29%.

Fair Value
My Fair Value is 15x 2023 revenue, giving us a Fair Value of $38 for 2023 and $49 for 2024.

13 x $0.77 billion revenue = $10 billion market cap
$10 billion / 30.2 million shares = $33

2023 Fair Value:
15 x $0.77 billion revenue = $12 billion market cap
$12 billion / 30.2 million shares = $38
Upside/Downside: +16%

2024 Fair Value:
15 x $0.99 billion revenue = $15 billion market cap
$15 billion / 30.2 million shares = $49
Upside/Downside: +48%

Bottom Line
Confluent (CFLT) launched its IPO on June 2021 and the stock opened at $44 a share. This was during the late stages of the Bull Market, and the stock soared after it went public, then peaked at $93 on November 2021. The stock has since fallen, built a new base, and has broken out of that base.

CFLT is a new tech stock with lots of promise. I have the stock on my radar, but will pass on buying here as the stock’s just gone from the low-$20s to the mid-$30s. that’s a 50% gain in around a month.

CFLT will start out at 19th in the Growth Portfolio Power Rankings.

Power Rankings
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19 of 30

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