IBD 50 Growth Stocks To Watch: LinkedIn Alumnus Up 75%, Rebounding, With Earnings Due

Four-month-old Confluent (CFLT) is Wednesday’s IBD 50 Growth Stock To Watch. Shares are trading 75% above their initial offering price, but have pulled back about 13% from a late-September high and are finding support at their 50-day and 10-week moving averages.


Confluent went public in June, raising $828 million in cash and ending its first session with a market capitalization of $11.4 billion. It is part of a squad of volatile new issues on the current IBD 50 list. Software and fintech names in the group include Holdings (BILL), Asana (ASAN), Affirm Holdings (AFRM) and AppLovin (APP).

Chief Executive Officer and co-Founder Jay Kreps and Confluent’s other founders were previously part of a team at LinkedIn (LNKD) that spent years creating cloud-based, open-source software able to link data storage silos across the global LinkedIn network.

The program was donated to the nonprofit Apache Software Foundation collective, and named Apache Kafka. That program provides the backbone into which Confluent plugs the growing number of data offerings that enable companies reshaping themselves around software- and data-driven operations.

Kreps and partners Jun Rao and Neha Narkhede spun Confluent out of LinkedIn in 2014, aided by an initial investment of about $500,000 from LinkedIn.

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Confluent targets four market segments, as defined by researcher Gartner. Application Infrastructure & Middleware, Database Management Systems, Data Integration Tools and Data Quality Tools, and Analytics and Business Intelligence.

Gartner puts the total size for those four markets at $149 billion. Confluent estimates its products address $50 billion in market potential within that overall industry space.

About 88% of Confluent’s 2020 revenue came from subscriptions, the rest from services. Some 64% of 2020 revenue came from within the U.S. International sales were 36% of the top line.

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Confluent started 2021 with about $280 million in cash and marketable securities. It reports spending more than 44% of its revenue on research and development.

The company’s reported customer list includes Goldman Sachs (GS), Morgan Stanley (MS) and PNC Financial (PNC). In retail, Advance Auto Parts (AAP), Domino’s Pizza (DPZ) and Dick’s Sporting Goods (DKS) are on the list. Other Confluent users include SunPower (SPWR), Avis Budget Group (CAR) and Lumen Technologies (LUMN).

Confluent Stock: Looking For Rebound Volume

Confluent shares based for eight weeks shortly after their debut. The stock started to break out from that initial cup base on Aug. 23, then in September made good on the breakout attempt. Shares sprinted to a late-September peak more than 106% above their IPO price. Then the stock pulled back.

Five weeks later, the growth stock is finding support at its 50-day moving average. A rebound from the low Wednesday technically placed the stock in a buy range. However, volume on the bounce was weak.

Volume on Tuesday soared 63% above average, as the stock rebounded back above its short-term 21-day exponential moving average. But shares fell below that line Wednesday.

The stock found support at the 50-day earlier this month, so investors could justify a purchase now based on that prior action. Another option is to wait until Confluent has formed a base, which will take at least a week and a half.

The overall five-week consolidation may look steep, but it’s not quite 22% deep. That is a healthy depth for a cup or cup-with-handle base.

Still, for investors already in the stock, buying on a rebound is the best way to get in now. But it is worth a little watchful waiting to determine whether shares are headed back above their 21-day line or might turn down for some deeper consolidation — particularly ahead of the company’s third-quarter report, due after the market closes Nov. 4.

You can find Alan R. Elliott on Twitter @IBD_Aelliott


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