Data streaming platform provider Confluent (CFLT -5.77%) hasn't received much love on the stock market. Shares of the company are up only 25% in the past year, underperforming the 49% jump in the Nasdaq-100 Technology Sector index during the same period.
However, things are likely to change in 2024. Confluent started the year with a solid set of results for the fourth quarter of 2023, and it has now followed up its performance with another impressive showing for the first quarter of 2024. The company released its Q1 results on May 7, and its stock jumped more than 8% the following day.
Let's see why investors cheered Confluent's latest results.
Confluent swings to a profit and beats analysts' expectations
Confluent's Q1 revenue increased 25% year over year to $217 million, and it posted a non-GAAP (adjusted) profit of $0.05 per share as compared to a loss of $0.09 per share in the prior-year period. The numbers exceeded Wall Street's expectations, as consensus estimates were modeling an adjusted profit of $0.02 per share on $211.6 million in revenue.
More importantly, Confluent topped its impressive results with solid guidance. The company expects revenue of $229.5 million in the current quarter along with earnings of $0.045 per share at the midpoint of its guidance range. That would mean a revenue increase of just over 21% from the same period last year. Also, Confluent broke even on the bottom line in the year-ago quarter, so its earnings are set to grow once again.
Analysts were forecasting $228.7 million in revenue from Confluent in the current quarter. However, the company is expecting to do better thanks to the impressive traction that its cloud and subscription businesses have gained. Confluent Cloud, a fully managed software-as-a-service platform that allows customers to connect, store, manage, and access their data in continuous, real-time streams, saw a 45% year-over-year increase in revenue in the latest quarter to $107 million.
Also, Confluent's subscription revenue increased 29% year over year to $207 million, indicating that the company is now getting almost all of its business through subscription-related sales. The good news for investors is that the company is adding customers at a nice pace, and they are also spending more money on its offerings.
Confluent's total customer count increased 9% year over year to 5,120 last quarter. But more importantly, the number of customers who have contributed more than $100,000 in annual recurring revenue (ARR) to the company increased 17% year over year to 1,260 last quarter. Customers with at least $1 million in ARR increased at an even faster 24% from the year-ago period to 168.
More importantly, Confluent's existing customers have either been adopting more of its products or using the ones they already use more. This is evident from the company's dollar-based net retention rate, a metric that compares the ARR generated by its customers at the end of a quarter to the ARR generated by the same customers in the year-ago period.
Confluent's dollar-based net retention rate stood between 120% and 125% last quarter, and a reading of more than 100% in this metric is proof that the company is winning a bigger share of customers' wallets. This increase in spending by existing customers and a jump in the number of big-ticket customers is having a positive impact on Confluent's margins. This is evident from the fact that its gross margin was up by 4.7 percentage points year over year last quarter.
Additionally, the above points explain why Confluent has increased its full-year revenue guidance to $957 million from the earlier estimate of $950 million. It has also raised its 2024 earnings expectation to a range of $0.19 per share to $0.20 per share from the prior estimate of $0.17 per share. That would be a big increase over 2023 earnings of $0.04 per share.
What's more, analysts are expecting Confluent to maintain an outstanding pace of growth for the next five years, and that's not surprising considering the company's huge end-market opportunity.
The stock seems built for terrific long-term growth
Confluent estimates that it is sitting on a total addressable market that was worth $60 billion in 2022. By 2025, it is expecting its addressable market to increase to $100 billion. The company's total revenue estimate for 2024 indicates that it is simply scratching the surface of a huge opportunity. Not surprisingly, analysts are forecasting an improvement in Confluent's revenue growth rate over the next couple of years.
CFLT Revenue Estimates for Current Fiscal Year data by YCharts
Even better, analysts expect Confluent's bottom line to simply take off and clock an annual growth rate of 124% for the next five years. Based on its 2023 earnings of $0.04 per share, Confluent's earnings could hit $2.25 per share at the end of 2028 if it can indeed grow at that pace. It won't be surprising to see Confluent actually delivering such terrific growth because of the huge addressable market it is sitting on.
Assuming Confluent's earnings do increase to $2.25 per share in 2028 and it trades at 30 times earnings at that time, in line with the Nasdaq-100's multiple, its stock price could increase to $67. That would be a 123% increase from current levels, which is why investors who haven't bought this growth stock yet should consider doing so right away, before it soars higher.
