Enabling real-time analysis
Jamie Louko (Confluent): The traditional standard for processing data is that a company sends it to a data warehouse, where it gets processed in batches daily. However, there are plenty of businesses that need to analyze their data immediately, like a bank that needs to ensure that transactions are not fraudulent. Real-time data analysis has been underserved in a market where data is growing rapidly, but Confluent is making real-time data analysis more commonplace so that businesses operate faster, more accurately, and more efficiently.
The company has seen stellar adoption of this idea. The company’s customer count soared 62% year over year to 4,120 in Q1 2022, which helped the company reach $126 million in quarterly revenue. Its remaining performance obligations (RPOs) -- which are contracted future revenues -- also shot 96% higher year over year to $551 million. This shows that the idea of real-time data analytics is becoming more popular, and Confluent is seeing the lion's share of this adoption.
Where the company shines is with Confluent Cloud. It is cloud-native and fully managed by Confluent, whereas its on-premise software is managed by the firm. Confluent Cloud revenue skyrocketed 180% year over year to $39 million, and the retention on its cloud product is much stronger than its core solution. Cloud’s net retention rate was over 150% in Q1, much higher than the overall retention rate of 130%, and Cloud customers represented more than 50% of new bookings’ annual contract value. Both of these platforms, however, are incredibly sticky, and Confluent is seeing customers use more products at a much faster rate than customers are leaving.
Confluent’s lowlights are its unprofitability and cash flow. In Q1, the company lost $113 million and it burned $58.4 million in free cash flow. The company does have almost $2 billion in cash and securities on the balance sheet to fund these losses for a long time, but if a long-term recession were to hit the business and these losses accelerated for multiple years, Confluent could be caught between a rock and a hard place.
That being said, Confluent looks like a great company to own right now. The stock has been beaten down nearly 80% from its all-time high, and it now trades at 12 times sales -- a reasonable valuation for a company growing as rapidly as Confluent is. With digitalization trends in the business world at its back, Confluent is nicely positioned to succeed over the long term.
