This is my opinion based on the numbers and not financial advice.
Palantir Technologies Inc. is a software company that builds enterprise data platforms for use by organizations with complex and sensitive data environments. From building safer cars and planes, to discovering new drugs and combating terrorism, Palantir helps customers across the public, private, and non-profit sectors transform the way they use their data.
This company is my main play on AI, closely followed by Tesla. I do hold some AMD but haven’t been thrilled by how far they let NVidia get ahead. So lets dig into the numbers…
🔹 Income statements:
(Good) Revenue is up – Against last period 5%, annually 18%.
(Good) Operating income is up – Against last period 64%.
(Good) Net income is up – Against last period 42%
Some crazy growth leaps here, and I believe we haven’t even seen the boom time yet.
🔹 Balance sheet:
(Good) Assets are up – Against last period 6%, annually 31%.
(Good) Liabilities are down – -1% against last period but up 8% over the year, growth far outpacing that though.
(Good) Equity is up – Against last period 9%, annually 39%.
(Good) Cash pile is growing a nice clip, heavily into bonds. Why not take that free money whilst they can? What’s interesting here is that Palantir continue to expand their business AND their cash pile, whilst trimming down operating expenses… This is practically unheard of for a company growing at this rate. Very impressive.
🔹 Cash flow statement:
(Neutral) Operating cash is down -8% against last period but up 74% for the year. Not too bad really.
(Good) Capital Expenditure continues to drop, love to see it. For a company pushing this hard I would expect this to be much higher.
(Neutral) Free cash flow is down but nothing alarming.
Month over month metrics – Right click image and open on new page to zoom in
Month over month charts show a very impressive and consistent trend. The yearly charts are basically art…
Things I like:
• AIP boot camps enable the company to roll out a use case within a few days. This previously took around 4 months.
• Since launching AIP over 915 organisations have participated. Palantir are sucking people in with their best in breed product and consuming as much market share as possible BEFORE billing the customer. They want to get them addicted first.
• AIP demand is been so high there is now a backlog.
• Commercial growth has started to boom with a 69% customer increase YoY. I expect the revenue generated from these customers will pick up pace as the year goes by.
• They are eligible for inclusion into the SP500 – Racking up their 6th GAAP profitable quarter.
• CEO Alex Karp is an interesting guy. Reminds me a little of Musk. I love his passion and drive. I didn’t like his 2020 $1B pay check though. He doesn’t have a long proven history of running companies but I do like that Palantir is founder led. He also has the seal of approval from Peter Thiel, and I trust that guy!
• There’s no debt. How many growth companies can say they have no debt?
• Revenue is higher than operating expenses. Same as above, this is unusual for a company growing at this pace early in it’s story.
• Retail traders still hold over 52% of the stock. Institutions only hold 41%, the fun starts when they flush out retail.
• Palantir has seemingly cracked the code to make vast piles of data easy to process and benefit from.
• Not many people talk about how they are IL6 approved. There are only 2 other companies with this rating – Microsoft and Amazon Web Services. You can read more about it here.
• The success in AIP will see a lot of upselling into their other products. You can find out more about their other tools and use cases here.
Things I don’t like:
• Government growth has slowed down in comparison to commercial. Still 16% since the previous quarter though.
• We are seeing a lot of insider selling, but also institutional owners are growing. I’ve had a look back through insider history and its always been pretty consistent that there are more sells than buys. So I’m not that alarmed.
• Average revenue per customer has been falling. I would consider this more neutral though. Palantir have diversified into onboarding customers of all shapes and sizes, where initially they focussed on winning large contracts.
The forward P/E is higher than I would like, but I don’t think they will have much issue growing into that.
Guidance and Estimates:
Estimates all heading in the right direction, not sure why we have negative EBIT estimates though. Will need to look more into this.
Guidance also looks to continue the up trend. The market did sell off the stock on earnings, likely not happy with the guidance numbers as it seems to be expecting revenue to moon, given the stock price is a little rich. Wall street probably also didn’t like that the government saw much smaller growth than commercial.
Q1 2024 highlights:
• GAAP net income of $106 million, representing a 17% margin – 6th consecutive quarter of GAAP profitability
• GAAP income from operations of $81 million, representing a 13% margin – 5th consecutive quarter of GAAP operating profitability
• GAAP earnings per share (“EPS”) of $0.04
• Adjusted EPS of $0.08
• Revenue grew 21% year-over-year and 4% quarter-over-quarter to $634 million
• US commercial highlights
o US commercial revenue grew 40% year-over-year and 14% quarter-over-quarter to $150 million
o US commercial customer count grew 69% year-over-year and 19% quarter-over-quarter to 262 customers
o US commercial remaining deal value (“RDV”) grew 74% year-over-year and 14% quarter-over-quarter
• Commercial revenue grew 27% year-over-year and 5% quarter-over-quarter to $299 million
• Government revenue grew 16% year-over-year and 3% quarter-over-quarter to $335 million
o US government revenue grew 12% year-over-year and 8% quarter-over-quarter to $257 million
• Customer count grew 42% year-over-year and 11% quarter-over-quarter
• Adjusted income from operations of $226 million, representing a margin of 36%
o Sixth consecutive quarter of expanding adjusted operating margins
• Rule of 40 score of 57%
• Cash from operations of $130 million, representing a 20% margin
• Adjusted free cash flow of $149 million, representing a 23% margin
• Cash, cash equivalents, and short-term US treasury securities of $3.9 billion
Earnings was a beat:
EPS: $0.08 (Est. $0.077)
Revenue: $634M (Est. $615M)
You can check out the rest of the Q1 2024 presentation here. You can also find the earnings report here.
Institutional buyers:
Love tracking this, really helps identify when momentum is picking up and sentiment is flipping. As we can see below, Palantir institutional investors are continuing to load the boat. Expect this to continue as the company proves it can maintain its growth trajectory. You can find an up to date version of this here.
The technicals:
One thing I love about the Palantir’s stock price action is the volatility. It’s been great for adding and trimming my position over the last year, this might not be a strategy I continue to employ whilst they are on the verge of a ”growth” spurt.
- Daily and weekly RSI are fairly neutral.
- Daily MACDX shows a long fade of wales and a slow rise in retail. Not ideal but makes sense given the price action we are seeing. Weekly shows the same fade but much more gradual, and still dominating retail. I like that.
- Daily and weekly Banker funds haven’t seen much promising inflows since the last run up. Pretty neutral reading despite the buy signal on the daily chart. Historically the buy signal has preceded price action by a month or so.
Price is currently resting on a volume shelf and strong historical support, which has given us a nice bounce (long wick but closed red on the day), can’t say for sure it will hold though as price action still looks bearish at this point. The earnings drop did give us a gap to the upside. Next support is at $20.43, and I just want to point out that I’m a buyer of this stock any time it goes below the black DCA line on the chart at $21. So i hope it does go lower. I would like to build this back up to a 10% weighting in my portfolio, but not at these prices.
Trim and add targets:
My trim targets are marked on the daily chart in yellow (These do move around as price structure develops – To Keep up to date with this please check out my Etoro wall. I regularly post there on my trading plan, or you can ask me for an update.)
Conclusion:
I love the growth rate here and the balance sheet is bullet proof. For a growth company this is very impressive.
My play on this stock is a winner takes most growth play. I believe most businesses will have to take on a service like this if they want to stay competitive in the future. Who doesn’t want to pay for a product that saves you more than it costs?
In the future I don’t think there will be much of an issue getting back to all time highs. Probably in the next year or so, but don’t hold me to that!
As usual please let me know if I have missed something or any of the information provided here is wrong.
This thesis is up to date as of 08/05/2024
Just a reminder this is my opinion not financial advice, please make sure to do your own research.
