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Palantir (NYSE:PLTR) Reports Q1 In Line With Expectations But Stock Drops


Full Report / June 24, 2022
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Data-mining and analytics company Palantir (NYSE:PLTR) reported results in line with analyst expectations in Q1 FY2022 quarter, with revenue up 30.8% year on year to $446.3 million. However, guidance for the next quarter was less impressive, coming in at $470 million at the midpoint, being 2.84% below analyst estimates. Palantir made a GAAP loss of $101.3 million, improving on its loss of $123.4 million, in the same quarter last year.

Palantir (PLTR) Q1 FY2022 Highlights:

  • Revenue: $446.3 million vs analyst estimates of $443.5 million (small beat)
  • EPS (non-GAAP): $0.02 vs analyst expectations of $0.04 (45.3% miss)
  • Revenue guidance for Q2 2022 is $470 million at the midpoint, below analyst estimates of $483.7 million
  • Free cash flow of $20.2 million, down 76.8% from previous quarter
  • Gross Margin (GAAP): 78.8%, in line with 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.

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 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.

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 very strong over the last year, growing from quarterly revenue of $341.2 million, to $446.3 million.

Palantir Total Revenue

And unsurprisingly, this was another great quarter for Palantir with revenue up 30.8% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $13.4 million in Q1, compared to $40.7 million in Q4 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.

Guidance for the next quarter indicates Palantir is expecting revenue to grow 25.1% year on year to $470 million, slowing down from the 49.1% year-over-year increase in revenue the company had recorded in the same quarter last year. Ahead of the earnings results the analysts covering the company were estimating sales to grow 29.1% over the next twelve months.

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, licenses, technical support and other necessary running expenses was at 78.8% in Q1.

Palantir Gross Margin (GAAP)

That means that for every $1 in revenue the company had $0.78 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.

Cash Is King

If you follow StockStory for a while, you know that we put an emphasis on cash flow. Why, you ask? We believe that in the end cash is king, as you can't use accounting profits to pay the bills. Palantir's free cash flow came in at $20.2 million in Q1, down 86.5% year on year.

Palantir Free Cash Flow

Palantir has generated $253 million in free cash flow over the last twelve months, a solid 15.3% of revenues. This strong FCF margin is a result of Palantir asset lite business model and provides it plenty of cash to invest in the business.

Key Takeaways from Palantir's Q1 Results

Sporting a market capitalization of $19.3 billion, more than $2.52 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.

It was good to see Palantir deliver strong revenue growth this quarter. That feature of these results really stood out as a positive. On the other hand, it was unfortunate to see that the revenue guidance for the next quarter missed analysts' expectations and gross margin deteriorated a little. Overall, this quarter's results could have been better. The company currently trades at $9.4 per share.

Is Now The Time?

Palantir may have had a bad quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. We think Palantir is a good business. Its revenue growth has been strong. On top of that, its impressive gross margins are indicative of excellent business economics, and its strong free cash flow generation gives it re-investment options.

Palantir's price to sales ratio based on the next twelve months is 9.1x, suggesting that the market is expecting more moderate growth, relative to the hottest tech stocks. There is definitely a lot of things to like about Palantir and looking at the tech landscape right now, it seems that it doesn't trade at an unreasonable price point.

The Wall St analysts covering the company had a one year price target of $15.9 per share right before these results, implying that they saw upside in buying Palantir even in the short term.

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