Palantir Technologies is a data analytics software company that develops platforms for data fusions. The company provides data solutions with government agencies, cyber, defense and intelligence companies all across the world. The Palantir share price has fallen significantly since 2022 due to the company’s struggles to turn profitable. 2023 Q1 earnings will be an important turning point for Palantir and set the foundation for its future.
1. Palantir Earnings: Net income turns positive for second consecutive quarters
This is Palantir’s second straight quarter of positive net income following its 2023 Q1 profits. One of the key reasons is over $88 million in deferred revenue that was received for the first quarter. The management has also reassured customers that they will continue to be profitable in the future. This is undoubtedly a significant turning point for the business, which had trouble making profits in 2021 and 2022.
By having sustained profits, it helps to provide two key main benefits. Firstly, this brings significant credibility to the business’ technology, thereby enabling it to win more business. Secondly, this will also allow Palantir to potentially qualify for S&P 500 inclusion in the future. This explains why the management plans to focus on profitability to increase shareholder value. In the event that Palantir is included into the S&P 500, this will introduce institutional investment and the share price will be bound to increase.
2. Palantir Earnings: Strong YoY Revenue Growth
$525 million was the total revenue for the quarter, which represents an increase of 18% from the prior year. This growth rate may seem moderate for a growth tech company, but it is actually impressive for a few reasons.
Firstly, Q1 is traditionally the slowest revenue growth for most tech companies due to their seasonal nature. Companies tend to be more frugal with their spending in Q1 to stay within their annual budgets. Secondly, with the rise in interest rates, most companies are also more stringent in operational spendings. As a result, an increase in revenue growth speaks volume about the value that Palantir products bring to their customers.
3. Palantir Earnings: Strengthening of Palantir’s core customer base
One of the impressive things to note will have to be the 41% growth in customer base from prior year. This increase is primarily attributable to the expansion of its commercial customer base. This broadens Palantir’s clientele beyond government clients and demonstrates the rising demand for their goods. Currently, 55% of their revenue comes from government customers and the other 45% are from commercial customers. Finally, the growth in revenue from their Top 20 clients demonstrates the stickiness that Palantir products have on its users.
4. Palantir Earnings: Steady Gross and Operating Margin
Palantir has kept its gross margin of more than 80% of its revenue throughout the past year. This clearly demonstrates Palantir’s dominance in the data analytics industry. As evidenced by their operating and gross margin, the company is dedicated to profitable growth and will keep putting emphasis on investment. Additionally, a rise in operating margin demonstrates that the business is growing without unnecessarily raising operating costs.
5. Future Growth Opportunities
Acquire, Expand, and Scale are three straightforward stages that Palantir has adopted with great success to keep their clients’ loyalty. They are also constantly developing new products to meet the needs of their customers. Recently in their FoundryCon 2023, Palantir introduced their Marketplace Developer suite. Essentially, this enables customers to create and distribute data products they create in Foundry as their own SaaS offerings to clients. This strengthens Palantir’s consumer base even more as their customer’s clients are also Palantir customers.
Palantir’s network effects are increased by distributing its data capabilities across its customers. A great example would be Airbus creating the Skywise application from Palantir’s marketplace developer suite. This has now become the industry standard operating system for airlines, manufacturers and contracters. This industry data platform addresses issues with aircraft operating and has seen a high return on investment. As a result, more airlines are also starting to adopt the Skywise application to stay competitive.
In order to produce industry data products, Palantir will need to collaborate with critical partners such as Airbus. This enables them to keep a firm grip on the industries in which they already operate and perhaps even break into new ones.
Following the release of PLTR’s Q1 2023 financial report, this seems to be an overall positive result. And this appears to be the first step in the right direction for the company’s future. Their revenues will undoubtedly continue to rise as they broaden both their consumer base and network. However, a word of caution would be how the company manages its operational expenditures in the future. If you haven’t made an investment in Palantir, now might be a good moment to research and evaluate the stock. Ultimately this stock seems like a stock that will grow if it continues to maintain their stronghold in the Data and AI/ML space.
Disclose: We do have some positions in Palantir stock.
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