IPOs 2021: Confluent Addresses $91B Market Opportunity

Mountain View-based Confluent (Nasdaq: CFLT) is a leading provider of Apache Kafka-based solutions addressing the $149B global application infrastructure & middleware, database management systems, data integration tools and data quality tools, and analytics and business intelligence markets.

Confluent’s Offerings

Founded in 2014 by Jay Kreps and Neha Narkhede, Confluent is a streaming platform based on Apache Kafka that gives companies the opportunity to quickly and easily access data as real-time streams. The rapid adoption of cloud and mobile technologies has resulted in an explosion in the amount of computing power and data available with organizations today. However, to ensure that organizations leverage these capabilities better, businesses needed to be able to view this data real-time and across various silos. Organizations need to integrate disconnected applications and data in real-time, and applications need to be able to react continuously to everything happening in the business as it occurs. Traditional database technologies were designed for static data. Despite significant developments in the scalability and speed of analysis, most solutions remain limited to data-at-rest use cases and cannot successfully leverage data in motion.

Apache Kafka, originally created by Confluent’s founders at LinkedIn in 2011, has become a leading open source offering for data in motion. Confluent was set up to create a product that could make data in motion the key principle of global organizations. With an open-source technology, Confluent’s platform acts as a real-time, fault-tolerant, and highly scalable messaging system, allowing companies to shift data from isolated systems into a real-time data pipeline. Its solution can be deployed as a fully-managed, cloud-native SaaS offering on all major cloud providers, or as an enterprise-ready, self-managed software offering.

Confluent’s Financials

Confluent has seen rapid growth in the last few years. As of March 2021, it had 561 customers with $100,000 or greater in annual recurring revenue, compared to 374 such customers a year ago. During the same period, the number of customers with more than $1 million ARR grew from 33 to 60.

Revenues have also grown rapidly. For fiscal years 2019 and 2020, it reported revenues of $149.8 million and $236.6, respectively. Confluent Cloud revenues for this period grew from $14.4 million to $31.4 million and Confluent Platform revenues grew 53% to $177.2 million.

The company continues to report losses. It ended fiscal 2019 with an operating loss of $98.1 million that grew significantly to $233.2 million for fiscal 2020. Net loss grew from $95 million to $229.8 million during this period.

Earlier this month, Confluent reported its third-quarter earnings. Revenues grew 67% to $103 million, with a loss per share of $0.17.

By segment, subscription revenues grew 69.55% to $92.4 million, service revenues grew 45.31% to $10.17 million.

Among key metrics, customers with an ARR of more than $100,000 grew to 664 at the end of the quarter. Confluent Cloud revenue grew 245% to $27 million for the quarter.

For the fourth quarter, Confluent expects revenues between $108-$110 million, and a loss per share between $0.23-$0.21 million. For the fiscal year, it expects revenues of $376-$378 million, and a loss per share between $0.92-$0.90.

Confluent’s Product Expansion

Confluent believes that its total addressable market opportunity will grow from $50 billion in 2021 to $91 billion by 2024, representing a 22% annual growth rate. It is hoping to address this through continued product expansion.

Recently, Confluent announced Confluent for Kubernetes, its first platform meant to bring cloud-native capabilities to data streams in private infrastructures. The platform takes the expertise it has gained on managing thousands of Apache Kafka clusters in Confluent Cloud to provide the same cloud-native experience for on-premises environments. It will enable customers to create a private cloud Kafka service that not only powers applications but is also increasingly critical for the survival or organizations.

Confluent went public in June this year when it raised $828 million at a list price of $36 and valuation of $9.1 billion. Prior to going public, it had raised $455.9 million in five rounds of funding, with the most recent round being held in April 2020 for $250 million. It is currently trading at $88 with a market capitalization of $23.79 billion.

The overall data in motion market is a highly competitive one. Confluent has to compete with vendors such as Amazon, Azure, and Red Hat to name a few – all of whom have deep pockets, and access to enterprise customers.

Disclosure: All investors should make their own assessments based on their own research, informed interpretations, and risk appetite. This article expresses my own opinions based on my own research of product-market fit, channel execution, and other factors. My primary interest is in product strategy. While this may have bearing on stock movements, my writings tend to focus on long-term implications. The information presented is illustrative and educational, but should not be regarded as a complete analysis nor recommendation to buy or sell the securities mentioned herein. I am not a registered investment adviser and I am not receiving compensation for this article.

Photo Credit: Picabel from Pixabay

This segment is a part in the series : IPOs 2021