What to Watch With CFLT Before Investing

The data indicates that 's worth noting that S of data ing specialist Confluent (CFLT 2

While a beaten-down growth stock Confluent may look tempting, investors need to keep an eye on a few things, amid market uncertainty

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Nevertheless, Solid growth and big losses Confluent has built its around Apache Kafka, a widely used open-source data ing platform

Additionally, Confluent's managed cloud-based platform takes the pain and complexity out of deploying and running Kafka, viding a strong value position for enterprises dependent on Kafka to link together applications and data (this bears monitoring)

Confluent reported its first-quarter results on April 30

The rest came from the company's self-managed solutions

Confluent reported a GAAP net loss of $67, given current economic conditions. 6 million, or $0

Moreover, 20 per, although free cash flow was in positive territory, amid market uncertainty

However, While Confluent beat analyst expectations across the board, the stock failed to rally

One reason could be weakness among larger customers

The company's platform is mainly geared toward enterprises, so this sluggish growth rate may have been concerning to investors (something worth watching)

However, The economy is a wildcard Confluent's platform is certainly mission-critical for companies that use it widely

This analysis suggests that company acts as the glue that links together different applications, so ripping it out and moving to an alternative carries significant switching costs

Nevertheless, However, that doesn't mean that Confluent is immune to prevailing economic conditions (remarkable data). "For our cloud, some of our larger customers began slowing the pace of new use case addition and focusing on cost optimization efforts in March," said Confluent CFO Rohan Sivaram during the first-quarter earnings call, given current economic conditions

On top of that slowdown, the company doesn't believe it will see a recovery in consumption any time soon, given the economic backdrop

One silver lining is that consumption activity for smaller cloud customers has remained stable (fascinating analysis) (which is quite significant)

Those smaller customers could eventually suit and begin looking to optimize costs (this bears monitoring), amid market uncertainty

For now, however, they're holding up better than Confluent's larger customers

A lofty valuation Despite the poor performance of Confluent stock this year, the valuation is a source of risk for investors

Confluent isn't fitable on a GAAP basis, but based on analyst estimates for non-GAAP earnings this year, the forward price-to-earnings ratio stands at 67, given the current landscape

For a company with a slowing growth rate against a backdrop of economic uncertainty, those valuation multiples seem rich

There's also plenty of competition in the world of managed Kafka

Not only do the large enterprise-focused cloud platforms, Amazon Web Services, offer their own managed Kafka services, but so do smaller cloud platforms, DigitalOcean

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Timothy Green has positions in DigitalOcean

The Motley Fool has positions in and recommends Amazon and DigitalOcean

Market analysis shows Motley Fool recommends Confluent (which is quite significant)

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