The benefits of being a mission-critical platform
Jamie Louko (Confluent): The tech industry has been in turmoil this year. This isn’t just because valuations soared to egregious levels in the year prior, but inflation and other worsening macroeconomic factors have also impacted many stocks. Even big tech stocks like Alphabet (GOOG -1.17%) (GOOGL -1.01%) have seen strains on their financials as demand for some tech services has waned.
Confluent, however, isn’t in this bunch. The company’s real-time data processing service is still in high demand, likely because there is never a time when a business can’t stop processing data. For example, if you rely on Confluent for real-time data processing and analytics, the chances of you turning that service off are slim -- even during a shaky economic period.
Therefore, Confluent’s financials have continued to soar, while other tech names have slumped. The company’s third-quarter earnings -- which were reported on November 2, 2022 -- were highlighted by 48% year-over-year revenue growth to $152 million. This was driven by Confluent Cloud revenue -- the cloud-native version of Confluent’s enterprise service -- which skyrocketed 112% year over year to $57 million.
Confluent is continuing to attract large enterprises during this environment, demonstrating the company’s criticality and product quality. Confluent had 113 customers spending over $1 million annually in Q3 2022, which is six more than it had in Q2 2022 and 39 more than in Q3 2021.
The primary risk with Confluent is that it is nowhere near profitability. Year to date, Confluent has a net loss of $347 million, compared to just $417 million in revenue. However, the company’s loss margin is steadily improving. In Q3, Confluent’s net loss margin was 76.5% -- a stark improvement from the year-ago period, when it was 93%. As long as the company continues to improve its loss margin over the coming years, this might not be as concerning as meets the eye.
With Confluent trading at 12.5 times sales, it is far cheaper than other data analytics stocks like Snowflake (SNOW -0.36%). Given Confluent’s impressive execution during this challenging time, improving loss margin, and relatively low valuation, it looks like a great time to add Confluent to a diversified portfolio.
