Data-mining and analytics company Palantir (NYSE:PLTR) reported results in line with analysts' expectations in Q3 FY2023, with revenue up 16.8% year on year to $558.2 million. The company also expects next quarter's revenue to be around $601 million, in line with analysts' estimates. Turning to EPS, Palantir made a GAAP profit of $0.03 per share, improving from its loss of $0.06 per share in the same quarter last year.
Palantir (PLTR) Q3 FY2023 Highlights:
- Revenue: $558.2 million vs analyst estimates of $555.9 million (small beat)
- EPS (non-GAAP): $0.07 vs analyst estimates of $0.06 (25.1% beat)
- Revenue Guidance for Q4 2023 is $601 million at the midpoint, roughly in line with what analysts were expecting
- Free Cash Flow of $131.9 million, up 52.9% from the previous quarter
- Gross Margin (GAAP): 80.7%, up from 77.5% 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.
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).
As you can see below, Palantir's revenue growth has been strong over the last two years, growing from $392.1 million in Q3 FY2021 to $558.2 million this quarter.
This quarter, Palantir's quarterly revenue was once again up 16.8% year on year. We can see that Palantir's revenue increased by $24.8 million quarter on quarter, which is a solid improvement from the $8.13 million increase in Q2 2023. At least some shareholders will be pleased with the acceleration of growth.
Next quarter's guidance suggests that Palantir is expecting revenue to grow 18.2% year on year to $601 million, in line with the 17.5% year-on-year increase it recorded in the same quarter last year. Looking ahead, analysts covering the company were expecting sales to grow 18% over the next 12 months before the earnings results announcement.
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 80.7% in Q3.
That means that for every $1 in revenue the company had $0.81 left to spend on developing new products, sales and marketing, and general administrative overhead. Trending up over the last year, Palantir's excellent gross margin allows it to fund large investments in product and sales during periods of rapid growth and achieve profitability when reaching maturity.
Cash Is King
If you've followed StockStory for a while, you know that we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can't use accounting profits to pay the bills. Palantir's free cash flow came in at $131.9 million in Q3, up 304% year on year.
Palantir has generated $480.9 million in free cash flow over the last 12 months, an impressive 22.6% of revenue. This high FCF margin stems from its asset-lite business model and strong competitive positioning, giving it the option to return capital to shareholders or reinvest in its business while maintaining a cash cushion.
Key Takeaways from Palantir's Q3 Results
Sporting a market capitalization of $32.1 billion, more than $3.28 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.
Palantir beat both revenue and EPS estimates, and provided in-line guidance. We enjoyed seeing the strong free cash flow. Zooming out, we think this was a decent quarter, showing that the company is staying on target. The stock is up 12.8% after reporting and currently trades at $16.84 per share.
Is Now The Time?
When considering an investment in Palantir, investors should take into account its valuation and business qualities as well as what's happened in the latest quarter.
There are several reasons why we think Palantir is a great business. First off, its revenue growth has been solid over the last two years. Additionally, its impressive gross margins indicate excellent business economics, and its bountiful generation of free cash flow empowers it to invest in growth initiatives.
Palantir's price to sales ratio based on the next 12 months of 13.8x indicates that the market is definitely optimistic about its growth prospects. But looking at the tech landscape today, Palantir's qualities stand out and we still like it at this price.
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