Data-mining and analytics company Palantir (NYSE:PLTR) reported results in line with analysts' expectations in Q2 FY2023, with revenue up 12.7% year on year to $533.3 million. The company also expects next quarter's revenue to be around $555 million, roughly in line with analysts' estimates. Palantir made a GAAP profit of $27.9 million, improving from its loss of $179.3 million in the same quarter last year.
Palantir (PLTR) Q2 FY2023 Highlights:
- Revenue: $533.3 million vs analyst estimates of $533.9 million (small miss)
- EPS (non-GAAP): $0.05 vs analyst expectations of $0.05 (small miss)
- Revenue Guidance for Q3 2023 is $555 million at the midpoint, roughly in line with what analysts were expecting
- The company raised revenue guidance for the full year to AT LEAST $2.21 billion (this was previously the midpoint)
- Free Cash Flow of $80 million, down 57.7% from the previous quarter
- Gross Margin (GAAP): 80%, up from 78.4% in the same quarter last year
Started by Peter Thiel after seeing US defence agencies struggle in the aftermath of the 2001 terrorist attacks, Palantir (NYSE:PLTR) offers software as a service platform that helps government agencies and large enterprises use data to make better decisions.
Organizations generate a lot of data that is stored in silos, often in incompatible formats, making it slow and costly to extract actionable insights, which in turn drives demand for modern cloud-based data analysis platforms that can efficiently analyze the silo-ed data.
Sales Growth
As you can see below, Palantir's revenue growth has been strong over the last two years, growing from $375.6 million in Q2 FY2021 to $533.3 million this quarter.
This quarter, Palantir's quarterly revenue was once again up 12.7% year on year. However, its growth did slow down compared to last quarter as the company's revenue increased by just $8.13 million in Q2 compared to $16.6 million in Q1 2023. While we'd like to see revenue increase by a greater amount each quarter, a one-off fluctuation is usually not concerning.
Next quarter's guidance suggests that Palantir is expecting revenue to grow 16.1% year on year to $555 million, slowing down from the 21.9% year-on-year increase it recorded in the same quarter last year. Ahead of the earnings results announcement, the analysts covering the company were expecting sales to grow 18% over the next 12 months.
While most things went back to how they were before the pandemic, a few consumer habits fundamentally changed. One founder-led company is benefiting massively from this shift and is set to beat the market for years to come. The business has grown astonishingly fast, with 40%+ free cash flow margins, and its fundamentals are undoubtedly best-in-class. Still, its total addressable market is so big that the company has room to grow many times in size. You can find it on our platform for free.
Profitability
What makes the software as a service business so attractive is that once the software is developed, it typically shouldn't cost much to provide it as an ongoing service to customers. Palantir's gross profit margin, an important metric measuring how much money there's left after paying for servers, licenses, technical support, and other necessary running expenses, was 80% in Q2.
That means that for every $1 in revenue the company had $0.80 left to spend on developing new products, sales and marketing, and general administrative overhead. Palantir's impressive gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity. It's also comforting to see its gross margin remain stable, indicating that Palantir is controlling its costs and not under pressure from its competitors to lower prices.
Key Takeaways from Palantir's Q2 Results
Sporting a market capitalization of $38.6 billion, more than $3.1 billion in cash on hand, and positive free cash flow over the last 12 months, we believe that Palantir is attractively positioned to invest in growth.
The main positive is that the company raised full year guidance for both revenue and adjusted operating income. On the other hand, next quarter's revenue guidance came in slightly below analysts' expectations and it missed Wall Street's revenue growth expectations. Overall, this was a mixed quarter for Palantir. The company is down 5.58% on the results and currently trades at $16.98 per share.
So should you invest in Palantir right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.
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The author has no position in any of the stocks mentioned in this report.