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.
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 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.
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.
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 $80 million in Q2, up 40.4% year on year.
Palantir has generated $375.4 million in free cash flow over the last 12 months, an impressive 18.1% 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 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.
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. We think Palantir is a good business. Its revenue growth has been solid. On top of that, its impressive gross margins are indicative of 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 17.0x indicates that the market is certainly optimistic about its growth prospects. There's 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.
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