LinkedIn Spinout Confluent Files for IPO, With Annualized Revenue of Over $300 Million

  • Confluent's founders built the technology inside LinkedIn and created a separate company in 2014.
  • The company filed for an IPO on Tuesday and said first-quarter revenue climbed 51% to $77 million.
  • Confluent was valued at $4.5 billion in a private financing round last year.

Seven years after spinning out of LinkedIn, cloud software developer Confluent is going public.

Confluent, which sells software that developers can use to quickly move data for use inside applications, filed its IPO prospectus on Tuesday, seeking to become the latest enterprise business to go from open-source project to multibillion-dollar public company.

Revenue in the first quarter jumped 51% from a year earlier to $77 million, with most of its sales coming through subscriptions. The company's net loss widened to $44.5 million from $33.6 million, as sales and marketing costs jumped.

At the foundation of Confluent's software is Apache Kafka, which got its start inside of LinkedIn. The founders of Confluent — Jay Kreps, Jun Rao and Neha Narkhede — created Kafka in 2011 and then formed Confluent in 2014 with an investment of about $500,000 from LinkedIn. The company was most recently valued at $4.5 billion in a round last year led by Coatue Management and Altimeter Capital.

"We rolled it out at scale for early use cases at LinkedIn, handling data streams with billions of messages," Kreps, Confluent's CEO, wrote in a letter in the prospectus. "But even then, our ambition was bigger. Kafka was built to be open source, and we wanted it to do much more than serve one use case in one company." 

Before Confluent, Cloudera and Hortonworks gained momentum by commercializing Apache Hadoop, which originated inside internet companies such as Facebook, Google and Yahoo. Hortonworks spun out of Yahoo and merged with Cloudera in 2019.

As independent companies and then a combined entity, Cloudera and Hortonworks struggled to find a workable business model. Earlier on Tuesday, Cloudera agreed to sell to private equity firms in a $5.3 billion deal.

In the realm of on-premises software Confluent said that Cloudera poses some competition, along with IBM and Oracle. However, its primary business is across the big cloud infrastructure providers Amazon, Microsoft and Google, which all also have competitive offerings of some sort.

Confluent had $167 million in non-cancelable purchase obligations, primarily related to cloud agreements, at the end of 2020. The company received 18% of its revenue from its cloud service in the first quarter, up from 12% in the year-ago quarter.

Confluent, which has close to 1,500 employees, said in its prospectus that over 70% of Fortune 500 companies are estimated to have used Kafka. Its customers include Citigroup, Humana, Intel and Walmart, according to Confluent's website.

Confluent said it offers a traditional license to customers, and also has a community license to its software available that provides access to its source code. The company said it "explicitly restricts others, including cloud vendors, from taking this source code and using it to offer a competing software-as-a-service, or SaaS, offering." Amazon introduced a service based on Kafka in 2018.

Morgan Stanley, JPMorgan Chase and Goldman Sachs are the lead underwriters of the IPO. The stock will trade on the Nasdaq under the symbol "CFLT."

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