Confluent IPO is set to go: what exactly does Confluent do?
18:35, 22 June 2021
Confluent is the infrastructure software company co-founded in 2014 by ex-LinkedIn engineer Jay Kreps. The company markets itself as a provider of a “central nervous system” for companies to connect its applications, systems and data.
As the world continues to pivot towards a digital-first reality, companies of all shapes and sizes need to adapt accordingly. But adding an application or automating an existing process isn’t sufficient to maintain an edge over competitors.
Confluent believes that companies need to reimagine their entire business as a “matter of life or death”.
Confluent going public in mid-2021 is a highly anticipated initial public offering (IPO). Investors are craving exposure to young companies that will play a role in the future of business. Here’s a complete guide to the Confluent IPO based on its regulatory S-1 filing, including what the company does and key details.
What does Confluent do?
The first and most obvious question on everyone’s mind is what does Confluent do? Confluent is a full-scale event software streaming platform that helps companies thrive in a digital-first reality. Up until very recently, people typically associated software with tools used to increase an individual worker’s productivity, such as email and expense reporting.
But software has expanded from beyond improving individual workers to benefitting the company as a whole.
Companies end up sitting on piles of data stored in separate, unintegrated databases. Confluent makes it possible for companies to integrate data in real-time. The company notes in its regulatory filing:
Confluent’s solution can be sold to customers as Confluent Cloud, a fully-managed cloud-native SaaS (software as a service) offering available on-demand, and Confluent Platform, the enterprise-ready, self-managed software offering.
The timing for such a shift is based, in part, on the cloud’s evolution that makes it possible for developers to create applications. Modern mobile capabilities that let us do almost anything anywhere, along with advances in machine learning, set the stage for companies to become more efficient than ever before.
Think of how a retail store needs impeccable inventory tracking capabilities that span multiple channels to make sure customers have access to real-time data on products they want to buy. Failure to do so means a customer could show up in a store and not find the item they previously thought was in stock. It’s likely they wouldn’t return.
Companies that excel at being able to deliver on their promises to consumers should see superior growth versus those that consistently disappoint.
According to Confluent, it currently addresses a $50bn market across Application Infrastructure & Middleware, Database Management Systems, Analytics and Business Intelligence, and Data Integration Tools and Data Quality Tools (excluding other Data Integration Software). Confluent cites data from Gartner that models the size of the total addressable market to expand at a 22% compounded annual growth rate to $91bn by 2024.
Confluent financial details
After looking at what Confluent does, let’s move on to discuss some key financial details. Confluent’s S-1 filing says that as of 31 March 2021 it had 561 customers with $100,000 or more in annual recurring revenue (ARR). Among those, 60 customers contributed $1m or more in ARR.
Confluent revenue is up to $236.6m in 2020, from $149.8m in 2019 and $65.2m in 2018.
Confluent notes that as of 31 March 2021, it counts 136 of the Fortune 500 companies as customers that combined for around 35% of revenue for the first quarter of 2021.
Operating loss has worsened from $41.535m in 2018 to $98.11m in 2019 and $233.18m in 2020. Similarly, operating loss for the first quarter of 2021 increased from $33.38m in the same period a year ago to $45.14m.
Based on the company’s financial data, the Confluent valuation stands at around $8bn. This translates to an IPO starting price range of $29 to $33 a share, although the actual price could fluctuate based on market conditions at the time and other factors outside of its control. Once public, the company’s name and the ticker will be Confluent, Inc. (CFLT).
Ahead of the Confluent IPO (exact date TBD), 2021 investors will be debating if this is a high valuation or implies a discount versus future outlook. By comparison, the company was valued at $4.5bn in 2020 during a private financing round.
Confluent has operated with net losses in every period since its founding and has accumulated a deficit of $450.6m since 2014. As a young company, it cannot forecast future results with much accuracy, especially as it’s up against large rivals, including Microsoft’s Azure Event Hubs, Amazon Kinesis and Amazon DynamoDB Streams, and Google’s Cloud Pub/Sub and Cloud Dataflow.
Nevertheless, the company presents a solid growth strategy that relies in part on customers signing up for a free cloud trial and quickly realising the power of the Confluent ecosystem.
Other strategies to fuel growth that help justify the Confluent IPO price include upselling existing customers, investing in improving its platform by adding more capabilities and building more applications, growing its partner ecosystem, and expanding internationally.
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