Investing in the metaverse with event streaming
They say the average human driver needs about half a second to react to an unexpected event while driving. “In athletics anything less than a tenth of a second is considered inhumane and therefore a false start.” It depends a study by Sky Sports who measured F1 driver Nico Hulkenberg’s reaction time to less than a tenth of a second when he won the 2017 Austrian Grand Prix.
The ability to analyze data in real time is of critical importance in almost any use case where data is used to produce information. If the metaverse imagined by Jensen Huang of NVDA (NVDA) comes to fruition, we will have a digital twin of every business that will be monitored in real time as we move towards eliminating all possible inefficiencies. Today we’re going to take a look at a company that wants to dominate real-time data processing (also known as stream processing or event streaming) and has a plan to do it – Confluent Inc (CFLT).
About the confluent stock
In our previous article on Real-time data analysis and metaverse we talked about how an open source software platform called Apache Kafka is used by 80% of the Fortune-500. Kafka’s origins can be found in LinkedIn where it was developed, and where Kafka’s deployments recently surpassed 7 trillion posts per day. The three engineers who developed Apache Kafka – Neha Narkhede, Jun Rao and Jay Kreps – left LinkedIn to start Confluent with their employer as one of their investors. With funding of $ 6.9 million, the trio managed to build a $ 20 billion business in just seven years.
Called “flow treatment”, the pure ssoftware-am-a–sservice (SaaS) offered by Confluent is very expensive and sells like hot cakes. For those of us who talk nerd, here it is from the horse’s mouth:
Our idea was that instead of focusing on keeping stacks of data like our relational databases, key stores, search indexes, or caches, we focused on treating data as a ever-changing and ever-increasing flow, and about building a data system – and indeed a data architecture – geared around that idea.
Jay Kreps – Co-founder of Confluent
Being able to analyze streaming data on the fly is a $ 50 billion market, according to Confluent. The easiest way to visualize the potential of the Confluent platform is to imagine a lightless factory that builds cars and was recreated in the Metaverse as a digital twin. You won’t want to hear about a problem a week after the signs start to appear, you need to know it within minutes. If you are using a platform like Augury that listens to the sound of your machines to hear when they need maintenance or are about to break down, you need this information as fast as possible to act immediately. They don’t call it predictive maintenance for nothing.
There are also implications around data infrastructure costs. Instead of storing all of your events in an expensive data management platform like Snowflake, just send all that exhausted data to Confluent so they can quickly analyze it, take action, and then iterate. While platforms like Snowflake will have no problem performing the same set of scans, they won’t be able to do it at the speed Confluent can. So you get improved latency at a lower cost, something that every VSthief Ttechnology Oagent (CTO) may be late. These two-pronged value propositions sell exceptionally well in times of economic crisis, when everyone is told to “step up their efforts” and do more with less.
Our confidence in the Confluent platform stems from knowing how the open source community works. Software developers – the kind who don’t try to advance their careers by complaining – have a knack for recognizing skills in their ranks. They know it when they see it. A rock star developer can be an arrogant jerk, but they’ll usually live up to what is due, if not just because of peer pressure. Anyone who uses Apache Kafka – like all the engineers at 80% of the Fortune 500 companies where it is used – will respect the creators of this program. When the time comes for Confluent to sell its platform to an internal audience of decision makers, this respect can make the difference between Call for tenders is chosen. This is especially true if your competition looks like this.
We couldn’t find a Gartner Magic Quadrant for “Stream Processing”, but we did find the chart above which is based on a report titled “Gartner, Market Share Analysis: Event Stream Processing Platforms, Worldwide, 2020 Which is only available for paying customers. This may be one of the worst graphics we’ve seen in a while. That’s a classic Y-axis stretch, and Microsoft’s 11% is weirdly larger than the other two 11% values, but let’s get to the knocks here.
Table appears to be produced by Informatica, a company said to have the second largest market share in “continuous analysis” and which recently achieved a Iinitial ppublic ooffering (Initial Public Offering) who have tried to convince the masses that they are not just an exhausted software company that has fallen behind. The obvious question is, why isn’t Confluent in the “table” above?
The answer might lie in the Confluent S-1 document which accompanied their IPO last June. The company believes that their ttotal aaddressable mMarlet (TAM) crosses four main market segments defined by Gartner. Here’s how they see their $ 50 billion AMR spread across these four areas:
- $ 31 billion in application infrastructure and middleware
- $ 7 billion in database management systems
- $ 7 billion in Analytics and Business Intelligence
- $ 4 billion in data integration tools and data quality tools
In addition, the above opportunity is expected to reach $ 91 billion by 2024, a vscompound aannual grank rAte (TCCA) by 22%. This breakdown suggests that Confluent could exist in a competitive landscape of its own, a landscape that has yet to be invented by overpaid MBAs.
Let “Stream Processing” = “Event Streaming”;
Kai Waehner may present himself as a tech evangelist, but don’t blame him for it. Zee Germans often use headlines like this to impress Americans. Mr. Waehner’s current title, Field CTO at Confluent, means he spends most of his time outside the Ivory Tower speaking with clients, partners and potential clients. Just a few weeks ago, Mr. Waehner wrote an excellent article on this subject which concludes that, “unfortunately, a Gartner Magic Quadrant or Forrester Wave for streaming events does NOT exist today”. He then proposed that the competitive landscape should look something like this.
According to the above image we faked that is still not readable, Confluent’s most formidable competitor could be a company we wrote about four years ago in an article titled Cloudera – How about you doing here? Here’s how we described the company at the time:
So, there is this very popular open source software called Hadoop and people are using it to store and process big data. A whole bunch of smart software guys loved Hadoop, so they went to found a company called Cloudera and brought with them the guy who wrote the Hadoop software back in 2004.
And that’s about all we got.
Both of these companies have been successful coming from the open source community, but we’ll save a proper comparison for another day and get down to the real stuff. Is the Confluent Action a good way to invest in pickaxes and shovels for the Metaverse?
Investing in the metaverse with event streaming
Props to one of our loyal readers who brought Confluence to our attention, and we now blame ourselves for not having sufficiently rated the IPO of Confluent which debuted in June 2021. (We have a process in place to verify all upcoming IPOs and it clearly needs some tweaking.) When Confluent stocks debuted on the public market, they had a market capitalization of $ 11.4 billion. Here’s what our simple valuation ratio would have looked like at the time using revenue of $ 77 million in the first quarter of 2021:
- Market capitalization / annualized income
$ 11,400 / 308 = 37
It’s barely below our threshold of 40. (We do not invest in any company with a simple valuation ratio greater than 40, no matter how large their history is.) Today, stocks are overpriced on the basis of a turnover of 103 million dollars in Q3-2021:
- Market capitalization / annualized income
$ 20,460 / 412 = 50
Several weeks ago, Confluent actually fell enough that the ratio was below 40. We hope this won’t be the last time the ratio drops like this, and when it does start again, we could be long. If this happens, Analyze Premium subscribers will be the first to know. In the meantime, we’ve prepared a room for our research team that will open Confluent’s kimono and make sure there are no red flags in it.
Confluent may represent a solid way to invest in the future metaverse where the world’s businesses will be largely represented by digital twins. Confluent ticks all the boxes for us so far, a pure-play SaaS pick-and-shovel that fits our ideal size with a market cap of $ 20 billion and plenty of room for future growth. Like Snowflake, stocks come at a high price, but they’re also prone to volatility like any other tech stock. If that valuation drops enough, we might be able to dwell on the exciting future of event streaming for a long time.
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