Palantir reported fourth-quarter revenue of $1.4bn ($1.3bn expected), up 70% year-over-year and 19% quarter-over-quarter. Performance was driven by its US commercial and government businesses.
Underlying operating profit more than doubled to $798mn, driven by the revenue growth and lower operating costs.
Underlying free cash flow rose 53% to $791mn, helped by the improved profitability. Net cash, including lease liabilities, improved from $5.0bn to $6.9bn.
For the current quarter, Palantir expects revenue of around $1.5bn, with underlying operating profit of around $872mn. For the full year, revenue is expected to be around $7.2bn, with underlying operating profits of around $4.1bn, well ahead of consensus forecasts of $6.6bn and $3.4bn respectively.
The shares rose 7.0% in pre-market trading.
Our view
Palantir’s performance continues to impress, beating forecasts on both the top and bottom lines. The demand outlook for its tools remains strong, as triple-digit annualised growth in new contracts pushed the backlog of work up to record levels.
Palantir builds software to help businesses and government agencies (primarily in the US) analyse data and make better decisions using artificial intelligence (AI). It has two underlying platforms: Gotham, which helps government agencies like the military and police, and Foundry, which is used by businesses in healthcare, finance, and other industries.
Palantir’s software gathers and organises large amounts of data, making it easier to find patterns and predict future trends. One of its key features is the so-called ‘ontology framework’, which connects different pieces of data to uncover hidden relationships. This helps organisations improve efficiency and make smarter decisions.
AI has helped Palantir significantly improve the value of its product, and its new AI Platform enables the integration of large language models into its existing Gotham and Foundry platforms. Once customers are ensnared in the Palantir world, it’s very hard to give up the data insights and get out of its web, making revenue very sticky.
Palantir has made significant strides with bootcamps, in a similar fashion to Salesforce, to act as touch points with clients where it can demonstrate the value of its product. Network effects are now acting as demand drivers too, where word of mouth acts as a circular flywheel.
Moving to the fundamentals. Revenue, profit and cash flows are all booming. The US market is an especially promising area, and we’re seeing a surge in both commercial and government contracts. The commercial side is especially important for the Palantir growth story and where investors should be focusing their attention – this is where the new and massive addressable market exists.
All in, Palantir is positioning itself as a leader in using data and AI to deliver real-world benefits to government agencies and companies. Exceptional performance coupled with a strong AI narrative means sentiment has taken a significant step forward in the past couple of years.
It’s also earning a strong reputation for over-delivering. Despite the shares’ hefty premium, we see further upside potential if growth comes through in line with forecasts and sentiment remains strong. But this is a high risk/reward name that will be more exposed than most to a shift in the winds. Investors need to be prepared for more volatility than the average tech name.
Environmental, social and governance (ESG) risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, the company's overall management of material ESG issues is average.
The company’s executive pay isn’t tied to ESG targets, and its board committee only oversees governance. It also lacks an environmental policy and recent ESG reports, but it does have a whistleblower program in place. Palantir’s three co-founders have control over the company through a complex share structure, this reduces the impact that ordinary shareholders can have and is a risk to note.
Palantir key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.