1 Unstoppable Stock Down 66% to Buy Hand Over Fist, According to Wall Street

Feb 18, 2024

Data streaming is the technology behind many of your real-time experiences on the internet. It powers the live inventory information you see when you shop online, and your favorite sports betting platform uses it to feed live odds directly to your smartphone.

Confluent (NASDAQ: CFLT) leads the data streaming industry. The company just reported its financial results for the 2023 fourth quarter and full year, and investors sent its stock soaring. It’s already sitting on a 39% gain in 2024, but it remains 66% below its all-time high, so it still has plenty of ground to make up.

The Wall Street Journal tracks 30 analysts covering Confluent stock, and the majority have given it the highest possible buy rating. Not a single one recommends selling. Here’s why this is an instance investors should follow Wall Street’s advice.

A person standing in front of digitally enhanced shelving in a large factory.

Image source: Getty Images.

Why data streaming is so important for the future

20 years ago, watching a movie involved heading down to Blockbuster, renting a DVD disc, and going home to watch it using your DVD player. But as you know, platforms like Netflix changed everything. They store movies in centralized data centers and beam them to your TV using the internet. The rise of streaming eliminated an inefficient process and several layers of clunky hardware.

Data streaming works in very much the same way. Many years ago, businesses would harvest data from their customers (or from their operations), store it on-site using physical servers, and come back to analyze it at a later date. Now, businesses rent that computing power from tech giants like Microsoft and Amazon, which manage enormous centralized data centers. This is called cloud computing.

The cloud allows businesses to generate, process, and analyze data in one motion. The ability for managers to understand what their business is doing in real time is incredibly powerful because they can make rapid adjustments to maximize revenue and minimize costs. Plus, as I mentioned earlier, it helps them serve customers more effectively through live experiences.

For example, Domino’s Pizza used Confluent to build a real-time analytics platform for franchise owners, so they can see what’s happening in their stores at any given moment. It also uses Confluent to craft highly targeted marketing campaigns based on data it receives from its expansive digital sales channels.

Walmart uses Confluent for real-time inventory management. The company connects all of its physical and online sales channels so that when products are sold, stock can be replenished before the shelves run bare. That makes Walmart a reliable choice for customers.

Confluent delivered a strong fourth quarter, which capped off a great 2023

Confluent went into the fourth quarter of 2023 expecting to deliver $205 million in revenue. It beat management’s guidance with 26% year-over-year growth to $213 million.

That result capped off a strong year as the company reported $777 million in total revenue for 2023, up 33%.

Confluent’s highest-spending customer cohorts led the growth. The company was serving 4,960 businesses at the end of 2023, which included 1,229 businesses spending at least $100,000 per year (up 21% year over year) and 158 businesses spending at least $1 million (up 24%). The number of customers spending at least $5 million per year also doubled. These figures highlight how important data streaming has become to large organizations.

But it gets better. Confluent also had a net revenue retention rate of 125%, which means existing customers were spending 25% more with the company in 2023 than they were in 2022. Management provided examples of customers that started out with a modest investment in Confluent’s platform that have since increased their spending by 12 to 276 times over the last few years.

Despite Confluent’s strong performance last year, it has barely scratched the surface of what it estimates is a $60 billion opportunity in data streaming. That addressable market could to expand to $100 billion by 2025.

Wall Street is very bullish on Confluent stock

The Wall Street Journal tracks 30 analysts covering Confluent stock, and 17 of them have given it the highest possible buy rating. Three more are in the overweight (bullish) camp, and nine recommend holding. One analyst has an underweight rating on the stock, but none of them recommend selling.

Their average price target is $32.94, which is only marginally higher than where Confluent stock trades as of this writing. However, it’s possible we will see upward revisions to Wall Street’s price targets as analysts digest the company’s latest results, especially considering the stock has soared over 39% in 2024 already.

Confluent remains 66% below its all-time high, which was set during the tech frenzy of 2021. Investors assigned it an ambitious valuation then, so the steep drop is now a great buying opportunity, considering the company has gone from strength to strength. As Confluent captures more of its enormous addressable market in the coming years, it will reward investors who hold on to its stock for the long term.

Should you invest $1,000 in Confluent right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Confluent, Domino’s Pizza, Microsoft, Netflix, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

1 Unstoppable Stock Down 66% to Buy Hand Over Fist, According to Wall Street was originally published by The Motley Fool

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