Will Confluent stock be a buy after going public?

According to Allied market research, the data-as-a-service industry is expected to reach $ 61.4 billion by 2026. That’s more than 1,120% growth from $ 5 billion in 2018.

And now that Confluent shares are traded on NASDAQ, retail investors can potentially participate in that growth.

Confluent’s IPO on Wednesday, June 24th raised $ 828 million – or 23 million shares for $ 36 each. The shares were originally scheduled to sell between $ 29 and $ 33. However, investor interest was higher than expected.

Confluent has been valued at $ 9 billion since it was listed on NASDAQ. It has risen from a valuation of $ 4.5 billion last year.

The IPO was brokered by Morgan Stanley (NYSE: MS), JPMorgan Chase & Co. (NYSE: JPM) and Goldman Sachs Group Inc. (NYSE: GS).

The stock ticker is CFLT. But read this before you buy …

What is confluent?

Confluent is a Big Data-as-a-Service company from Silicon Valley founded in 2014. It specializes in “data in motion”. This simply refers to data that is transferred between locations, such as from a phone to a laptop or a data center.

A company can look at sales and marketing figures from yesterday, last week, or last month. But Confluent wants to unlock the power of real-time data for these companies. This is exactly what Confluent offers with its cloud platform.

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Rather than simply collecting a huge amount of old data, Confluent software is almost like a “central nervous system” at the core of a company’s apps and widgets. The company’s legacy system can “stream” through Confluent and collect data in real time so it can make up-to-the-minute decisions based on what’s going on in its business.

Data-in-motion will become a major trend towards enterprise software in the next ten years. Companies want it to support faster decision-making at all levels of the company as well as continuous innovation to help them beat their competitors.

Confluent is one of the leading companies in this market.

Is Confluent Profitable?

Confluent is not profitable. In fact, the company has posted a loss every year since 2014. In 2019, it lost $ 95 million. And in 2020 it lost $ 229 million.

Most recently, the company posted a quarterly loss of $ 44.5 million on sales of $ 77 million. At $ 33.6 million, that loss is even higher than in the prior-year quarter. The good news is that sales increased by $ 22 million from $ 51 million.

With these margins of loss, it should be noted that technology companies like Confluent have to spend a lot of money to start up. This includes both the cost of running your technology and marketing it.

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What you want to look at in these early stages is the sales growth that this company is having. Revenue increased more than 57% year over year in 2020 and 51% in 2021.

The growth is there. And Confluent delivers a product whose demand could potentially increase.

But is that enough to make this stock a buy after the IPO?

When should you buy Confluent stock?

The data-as-a-service market is specialized enough to put Confluent in a promising position.

The fact that Confluent serves large companies with complex needs is another plus. The company currently has 2,500 customers with a net retention rate of 117%. That said, for all the customers it has gained or lost since the company was founded, it has only been able to generate more sales.

Customers include big names like Expedia Group Inc. (NASDAQ: EXPE) and Intel Corp. (NASDAQ: INTC). Additionally, approximately 560 of those 2,500 customers pay Confluent annual revenue of $ 100,000 or more. 60 of these customers are paying $ 1 million or more.

Confluent software saw more widespread use in 2020 as COVID-19 lockdowns increased the need for streaming activity. Today the work-from-home trend continues and the demand for data streaming software like Confluent is increasing.

Still, a valuation of $ 9 billion is a bit high for a company that is not yet profitable and not yet accelerating revenue growth.

If an IPO stock sells higher than expected, you should be suspicious of its price for the first few weeks.

Where the peak was expected to be $ 33, the offer was $ 36. By the time it officially launched on NASDAQ, it had climbed to $ 45.

Typically for big tech IPOs like this one, the company has drawn a lot of hype. The higher than expected IPO price attracted even more investors.

And now if you look at the Confluent stock price chart, you will already see that the price has started to go down. It fell to a low of $ 42 on its first day of trading. And we expect it will continue to decline in the short term until it levels off at a reasonable price.

Sit back and wait – but don’t ignore Confluent stock. You can probably get this one at a bargain in a month.

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About the author

Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from Salisbury University’s Perdue School of Business. He has combined his degree in economics with an interest in new technology by discovering where technology and finance intersect. Today he is studying cybersecurity, AI, streaming and cloud.

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