Data-mining and analytics company Palantir (NYSE:PLTR) reported results in line with analyst expectations in Q3 FY2022 quarter, with revenue up 21.8% year on year to $477.8 million. The company expects that next quarter's revenue would be around $504 million, which is the midpoint of the guidance range. That was in roughly line with analyst expectations. Palantir made a GAAP loss of $123.8 million, down on its loss of $102.1 million, in the same quarter last year.
Palantir (PLTR) Q3 FY2022 Highlights:
- Revenue: $477.8 million vs analyst estimates of $474.9 million (small beat)
- EPS (non-GAAP): $0.01 vs analyst expectations of $0.02 (38.6% miss)
- Revenue guidance for Q4 2022 is $504 million at the midpoint, below analyst estimates of $506.5 million
- Free cash flow of $32.6 million, down 42.7% from previous quarter
- Gross Margin (GAAP): 77.4%, 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).
As you can see below, Palantir's revenue growth has been very strong over the last two years, growing from quarterly revenue of $289.3 million in Q3 FY2020, to $477.8 million.
This quarter, Palantir's quarterly revenue was once again up a very solid 21.8% year on year. But the growth did slow down compared to last quarter, as the revenue increased by just $4.87 million in Q3, compared to $26.6 million in Q2 2022. 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 16.4% year on year to $504 million, slowing down from the 34.3% 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 20.8% over the next twelve months.
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 77.4% 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. 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 $32.6 million in Q3, down 65.8% year on year.
Palantir has generated $197.4 million in free cash flow over the last twelve months, a solid 10.7% 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 Q3 Results
Sporting a market capitalization of $16.3 billion, more than $2.46 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.
This was mostly a in-line quarter for Palantir. It was good to see positive cash flow, on the other hand revenue growth has slowed down and gross margin deteriorated a little. The company currently trades at $6.73 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 strong, over the last two years. 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.
The market is certainly expecting long term growth from Palantir given its price to sales ratio based on the next twelve months is 7.4x. There are definitely 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 $10.6 per share right before these results, implying that they saw upside in buying Palantir even in the short term.
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