Nearly all tech stocks got thrown out with the bathwater in 2022, no matter the true business quality, so there are plenty of companies that have been left for dead. Many smaller, fast-growing companies still have a greenfield opportunity ahead of them, and their competitive advantages seem durable enough to outlast these macroeconomic concerns.
Confluent (CFLT 6.19%) is one of these forgotten companies. Shares of the tech stock have slumped 66% over the past year, despite sustained execution. With shares lower and the business continuing to execute, could Confluent bounce back in 2023? Let’s find out.
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The macroeconomy hasn’t impacted Confluent yet
Confluent enables businesses to analyze data in real time, which is often vital to an organization. Cause Walmart (WMT 1.23%), for example. Walmart uses Confluent’s platform to process data it ingests in real time to plan and manage its inventory levels. In other words, Confluent provides instant data processing to help businesses make proper actionable decisions.
Since many companies rely on batch processing — which is processing data in batches after it gets stored in a data warehouse days after the initial collection — Confluent is a breath of fresh air. That’s likely why the company has seen adoption skyrocket. Not only have businesses from Netflix (NFLX 8.46%) to Domino’s Pizza (DPZ -0.23%) started relying on Confluent’s real-time processing, but its revenue has soared. In the third quarter of 2022, Confluent generated $152 million in revenue. That’s more than is done during the entire year of 2019.
While the macroeconomy was brutal last year, it did not significantly influence how much customers spent on Confluent’s services. In Q3, the number of customers spending $100,000 annually continued to rocket higher, rising 39% year over year to 921.
The company’s unprofitability also leveled out in 2022, while many other businesses saw profits plummet. In the first nine months of the year, Confluent’s net loss remained relatively flat, and in Q3, it had a net loss of $116 million. This is very high, and it represents a margin of 76%. That said, it marks a noticeable improvement from 2021, when the company saw its net loss jump 157% from the start to the end of the year.
What could happen in 2023?
Confluent saw minimal impacts from the worsening macroeconomy in 2022, and the chances that this will change are fairly minimal. Why? Confluent’s services are so vital that businesses are unlikely to shift away, even if they need to cut budgets. After all, processing data is something all firms need to do to operate, and considering Confluent helps them do this most efficiently and effectively, companies are unlikely to waver. This is what investors saw in 2022, and nothing is signaling that it will change in the new year.
One can even argue that Confluent could save its customers money. If a company needs to make business decisions using data, a delay of just one day might result in business errors, which could cost money.
Just take Walmart again, for example. If Walmart doesn’t realize they are out of a specific item in its distribution warehouse, it might not deliver that item to its stores for a while, losing sales at multiple locations as a result. With Confluent, however, that discovery would be made in real time, allowing them to restock far earlier than they might otherwise.
A plummeting valuation could mean a bargain buy
The company certainly has the potential to bounce back in 2023 as investors realize that Confluent is continuing to see staggering adoption. Additionally, the company’s valuation is approaching an extremely attractive level. The company trades at just 10.9 times sales — nearly its lowest valuation since coming public in 2021. Even compared to other companies providing back-end software to manage data, Confluent looks cheap.
Aside from the company’s unprofitability, Confluent is firing on all cylinders. 2023 could be a positive year considering its valuation is bordering on bargain territory. Therefore, it could be a great time to buy a few shares in a diversified portfolio to own for the long term.
Jamie Louko has positions in Confluent. The Motley Fool has positions in and recommends Confluent, Domino’s Pizza, Netflix, and Walmart. The Motley Fool has a disclosure policy.