Palantir’s $PLTR results are here. Let’s break them down.
Let’s start with the headline numbers:
- Growth of 96%
- Revenue from the company’s commercial sector surpassed government revenue for the first time
Palantir reported revenue of 2.31 billion dollars, up 96% from a year ago. For the first time in its history, it topped 2 billion in a quarter and beat market estimates by roughly 140 million.
A historic milestone: commercial customers surpass government
For years, Palantir was seen as a software provider for the military and intelligence agencies. That has changed now.
Revenue from U.S. companies reached 984 million dollars, up 148%. U.S. government contracts brought in 953 million, a 96% increase. Commercial business thus surpassed government business for the first time in history.
Why does this matter? Government contracts are stable, but grow slowly and depend on budgets. The commercial market is vastly larger. If Palantir can sell its AIP AI platform to companies as successfully as it does to the Pentagon, its potential is much greater. Commercial revenue grew 29% quarter over quarter, faster than in the previous quarter.
Profitability
Operating margin reached 47%, compared with 33% a year ago. Free cash flow was 1.2 billion dollars, roughly half of revenue. So Palantir isn’t just growing quickly; each additional dollar of revenue is bringing in more profit. Costs grew by roughly 46%, while revenue grew by almost 100%.
Outlook: an increase the market was actually expecting
Although it sounds strange, that’s just how today’s market works...
Palantir raised its full-year revenue outlook to 8.53 billion dollars. As recently as August, it was projecting 8.15 billion, and analysts were expecting 8.2 billion.
The key point is that it raised its outlook by roughly 380 million, more than the amount by which it beat its own Q3 outlook. This also raises expectations for the final quarter of the year. The outlook implies Q4 revenue of around 2.65 billion dollars, another increase of almost 90%. The company expects its U.S. commercial business to grow by at least 143% this year.
New contracts are barely growing, leaving the share price fairly calm after the market close
The value of newly signed contracts (TCV) reached 2.9 billion dollars, up “just” 6% year over year.
Among U.S. companies, it grew by 11%, compared with 153% in the previous quarter.
And the remaining value of U.S. commercial contracts—that is, what Palantir has under contract for the future—grew by just 4% over the quarter, while revenue from them grew by 29%.
Palantir is rapidly turning existing contracts into revenue, but new ones are coming in more slowly. And large contracts arrive irregularly. If the slowdown is confirmed in subsequent quarters as well, maintaining a growth rate of around 90% would be difficult.
Valuation: still high in my view
At a price of around 180 dollars, Palantir is trading at roughly 52 times this year’s revenue.
Just to put that in perspective, Microsoft $MSFT, which is growing by 19%, trades at roughly 12 times revenue.
I bought Palantir in 2022 at $6.07. I sold after it crossed the $100 mark. I have no plans to take a position again since then.