Data-mining and analytics company Palantir (NYSE:PLTR) reported strong growth in the Q3 FY2021 earnings announcement, with revenue up 35.5% year on year to $392.1 million. Guidance for next quarter's revenue was $418 million at the midpoint, 4.01% above the average of analyst estimates. Palantir made a GAAP loss of $102.1 million, improving on its loss of $853.3 million, in the same quarter last year.
Palantir (PLTR) Q3 FY2021 Highlights:
- Revenue: $392.1 million vs analyst estimates of $386.4 million (1.47% beat)
- EPS (non-GAAP): $0.04 vs analyst estimates of $0.04
- Revenue guidance for Q4 2021 is $418 million at the midpoint, above analyst estimates of $401.8 million
- Free cash flow of $95.4 million, up 91.5% from previous quarter
- Gross Margin (GAAP): 77.8%, up from 48.3% 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 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).
As you can see below, Palantir's revenue growth has been impressive over the last year, growing from quarterly revenue of $289.3 million, to $392.1 million.
And unsurprisingly, this was another great quarter for Palantir with revenue up an absolutely stunning 35.5% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $16.5 million in Q3, compared to $34.4 million in Q2 2021. We'd like to see revenue increase by a greater amount each quarter, but a one-off fluctuation is usually not concerning.
Analysts covering the company are expecting the revenues to grow 28% over the next twelve months, although estimates are likely to change post earnings.
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 77.8% in Q3.
That means that for every $1 in revenue the company had $0.77 left to spend on developing new products, marketing & sales and the general administrative overhead. Significantly up from the last quarter, this is 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 Q3 Results
Since it has still been burning cash over the last twelve months it is worth keeping an eye on Palantir’s balance sheet, but we note that with a market capitalization of $52.2 billion and more than $2.48 billion in cash, the company has the capacity to continue to prioritise growth over profitability.
We enjoyed the positive outlook Palantir provided for the next quarter’s revenue. And we were also excited to see the really strong revenue growth. Overall, we think this was a strong quarter, that should leave shareholders feeling very positive. The company is up 3.88% on the results and currently trades at $27.78 per share.
Is Now The Time?
Palantir may have had a good quarter, but investors should also consider its valuation and business qualities, when assessing the investment opportunity. Although we have other favorites, we understand the arguments that Palantir is not a bad 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 customer acquisition costs are higher than we like to see, the good news is its impressive gross margins are indicative of excellent business economics.
The market is certainly expecting long term growth from Palantir given its price to sales ratio based on the next twelve months is 28.6x. We don't really see a big opportunity in the stock at the moment, but in the end beauty is in the eye of the beholder. And if you like the company, it seems that Palantir doesn't trade at a completely unreasonable price point.
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