Confluent digital native pressures weigh on stock potential – DA Davidson
On Thursday, DA Davidson adjusted its outlook on Confluent Inc (NASDAQ:) stock, reducing the price target to $30.00 from the previous $37.00, while still advocating for a Buy rating on the stock.
The adjustment follows Confluent’s second-quarter performance, which showcased a robust increase in cloud revenue, surpassing consensus estimates and achieving over 40% year-over-year growth.
Despite the positive aspects of the quarter, the company’s management highlighted challenges that have emerged since June. These include cost optimization pressures within the digital native customer segment, which have persisted into July. This situation has led to a downturn in the Dollar-Based Net Retention Rate (DBNRR), which dropped to 118%, falling short of the calendar year 2024 target range of 120-125%.
These pressures and the subsequent impact on DBNRR were also evident in the company’s outlook for the second half of the year. The forecast for subscription revenue for calendar year 2024 was merely reiterated at approximately $910 million, despite the second-quarter results exceeding expectations.
Nevertheless, there were positive indicators in the report, such as the addition of new logos and a DBNRR of over 130% among DSP customers. These highlights contributed to the firm’s decision to maintain a positive stance on Confluent’s stock.
The firm’s analyst noted, “We remain BUY rated; lowering PT from $37 to $30.” This statement underscores the belief that, in spite of the recent challenges, Confluent Inc. retains its potential for growth and investor interest.
In other recent news, Confluent Inc has been the subject of several significant developments. Loop Capital recently adjusted its outlook on Confluent, decreasing its price target to $25.00 from the previous $30.00, while maintaining a Hold rating on the stock.
This adjustment was made despite the firm’s comfort with the current market estimate of 40% revenue growth for Confluent’s Cloud business for the year.
In contrast, Mizuho Securities reduced its price target to $34 from the previous $36 while maintaining an Outperform rating, following Confluent’s first-quarter earnings report which showcased a total revenue increase of 25%.
Evercore ISI initiated coverage on Confluent with an Outperform rating and a price target of $35.00, predicting a revenue increase of over 25% in the fiscal year 2025 due to the company’s shift towards its cloud platform.
Oppenheimer also initiated coverage on Confluent, assigning an Outperform rating and setting a price target of $37.00. The firm cited Confluent’s strong market positioning, growth strategy, and technological leadership as factors that will enable it to exceed market expectations.
Lastly, TD Cowen increased its price target on Confluent to $37 from $34, following the company’s reported revenue growth of 25% and improved full-year 2024 revenue guidance. These are recent developments that may interest investors.
InvestingPro Insights
Confluent Inc (NASDAQ:CFLT) has been navigating a complex financial landscape, as reflected in its recent quarter performance and the revised analyst outlook from DA Davidson. The InvestingPro data sheds light on some key financial metrics that can provide investors with a more comprehensive view of the company’s current position. With a market capitalization of approximately $7.95 billion and a notable revenue growth of 29.3% over the last twelve months as of Q1 2024, Confluent demonstrates a strong top-line expansion. However, it’s important to note the company’s P/E ratio stands at -20.44, indicating that it has not been profitable over the last twelve months.
InvestingPro Tips suggest that Confluent’s balance sheet holds more cash than debt, and its liquid assets exceed short-term obligations, which may offer some financial stability. Moreover, analysts predict the company will become profitable this year, which could be a turning point for investors considering the stock. It’s also worth mentioning that Confluent does not pay a dividend, which might influence the investment strategy of income-focused shareholders. For those interested in a deeper analysis, there are 6 additional InvestingPro Tips available at InvestingPro.
With a Price / Book multiple of 9.41 as of Q1 2024, the company is trading at a high valuation when compared to its book value, which could suggest that investors are expecting high growth or that the stock is overvalued. While the recent price target adjustment by DA Davidson reflects some caution, the strong revenue growth and the potential for profitability highlighted in InvestingPro Tips provide a nuanced perspective for those evaluating Confluent’s future prospects.
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