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Palantir (NYSE:PLTR) Q2: Beats On Revenue, Stock Soars


Full Report / August 12, 2021
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Data-mining and analytics company Palantir (NYSE:PLTR) announced better-than-expected results in the Q2 FY2021 quarter, with revenue up 49.1% year on year to $375.6 million. Palantir made a GAAP loss of $138.5 million, down on its loss of $110.4 million, in the same quarter last year.

Palantir (PLTR) Q2 FY2021 Highlights:

  • Revenue: $375.6 million vs analyst estimates of $361 million (4.02% beat)
  • EPS (non-GAAP): $0.04 vs analyst estimates of $0.03 (16% beat)
  • Revenue guidance for Q3 2021 is $385 million at the midpoint, above analyst estimates of $380.1 million
  • Free cash flow of $49.8 million, down 66.9% from previous quarter
  • Gross Margin (GAAP): 75.7%, down from 78.2% previous quarter

Having experience with building fraud-predicting algorithms at his previous company Paypal, Peter Thiel started Palantir after seeing US defence agencies struggle in the aftermath of the 2001 terrorist attacks. The company got its first external funding from the CIA and today Palantir (NYSE:PLTR) offers software as a service platform that helps government agencies and large enterprises use data to make better decisions.

Palantir’s technology provides customers with capabilities to gather and ingest data from almost any source in almost any format and store it in the same type of interconnected architecture that Google uses. On top of the data platform then sits a range of data analysis and visualization tools, each with specific use cases from crime investigations, counterterrorism operation planning over to supply chain management and financial compliance.

Organizations generate a lot of data that is stored in silos, often in incompatible formats, making it costly and slow to extract actionable insights from it. This drives demand for data analysis platforms like Palantir.

Other companies with similar data management capabilities include Snowflake, Alteryx and cloud service providers such as Google, Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).

Sales Growth

As you can see below, Palantir's revenue growth has been impressive over the last year, growing from quarterly revenue of $251.8 million, to $375.6 million.

Palantir Total Revenue

And unsurprisingly, this was another great quarter for Palantir with revenue up an absolutely stunning 49.1% year on year. On top of that, revenue increased $34.4 million quarter on quarter, a very strong improvement on the $19.1 million increase in Q1 2021, and a sign of acceleration of growth.

Analysts covering the company are expecting the revenues to grow 28.4% over the next twelve months, although we would expect them to review their estimates once they get to read these results.

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 is left after paying for servers, licences, technical support and other necessary running expenses was at 75.7% in Q2.

Palantir Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.75 left to spend on developing new products, marketing & sales and the general administrative overhead. Despite the recent drop, this is still a good gross margin that allows companies like Palantir to fund large investments in product and sales during periods of rapid growth and be profitable when they reach maturity.

Key Takeaways from Palantir's Q2 Results

Sporting a market capitalisation of $42 billion, more than $2.34 billion in cash and with positive free cash flow over the last twelve months, we're confident that Palantir has the resources it needs to pursue a high growth business strategy.

We were impressed by the exceptional revenue growth Palantir delivered this quarter. And we were also excited to see it that it outperformed Wall St’s revenue expectations. On the other hand, it was less good to see the pretty significant deterioration in gross margin. Overall, this quarter's results seemed pretty positive and shareholders can feel optimistic. The company is up 5.05% on the results and currently trades at $23.48 per share.

Is Now The Time?

When considering Palantir, investors should take into account its valuation and business qualities, as well as what happened in the latest quarter. We think Palantir is a solid business. We would expect growth rates to moderate from here, but its revenue growth has been exceptional, over the last two years. And while its gross margins aren't as good as other tech businesses we look at, the good news is its bountiful generation of free cash flow empowers it to invest in growth initiatives.

The market is certainly expecting long term growth from Palantir given its price to sales ratio based on the next twelve months is 24.8. There are definitely things to like about Palantir and there's no doubt it is a bit of a market darling, at least for some. But when considering the company against the backdrop of the tech stock landscape, it seems that there is a lot of optimism already priced in and we are wondering whether there might be better opportunities elsewhere right now.