Palantir reported first quarter revenue of $1.63bn ($1.54bn expected), up 85% year-over-year and 16% quarter-over-quarter. Performance was driven by its US businesses, with commercial revenue up 133% and government revenue up 84%.
Underlying operating income more than doubled to $984mn ($862mn expected). Underlying free cash flow was $925mn and net cash, including leases, was $7.8bn at period end.
For the coming quarter, Palantir expects revenue of around $1.8bn ($1.7bn expected), with underlying operating income of around $1.1bn. For the full year, revenue is now expected around $7.7bn (previously: $7.2bn), with underlying operating income of around $4.4bn.
The shares were down 2.2% in pre-market trading.
Our view
Palantir’s performance continues to impress, beating forecasts on both the top and bottom lines. The demand outlook remains strong, with US revenue more than doubling, supported by large contract wins, stronger customer expansion and another raise to full-year guidance.
Palantir builds software to help businesses and government agencies analyse data and make better decisions. It has two underlying platforms: Gotham, which helps government agencies like the military and police, and Foundry, which is used by commercial customers across a range of 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 data, decisions and workflows so AI tools can operate with context, control and accountability.
AI has turbocharged demand and significantly improved Palantir's product value, with its AI Platform enabling the integration of large language models into live operations. Management argues this is what separates useful AI from unreliable outputs, with examples across insurance, manufacturing, defence and customer service.
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. Retention rates are strong and improving, new deals are continuing to grow, and customer numbers are rising.
Palantir’s approach to winning business looks different to most software companies. Rather than leaning on a huge sales machine, it uses a small sales team and forward-deployed engineers (FDEs), who work closely with customers to turn complex problems into working products - results suggest this is working.
Moving to the fundamentals. Revenue, profit and cash flows are all booming. The US market is the key driver, with commercial and government demand accelerating. Management is planning to ramp up investment in product and technical talent to help service growing demand. International growth is improving, but it remains well behind the US, an area we think is ripe for future growth.
All in, Palantir is proving out, in real time, the value of its innovative approach and is one of the key companies in this AI era. The earnings multiple has come down from last year’s extremes to a level we think can be supported if execution remains strong. The caveat is that expectations are sky high, and results need to keep beating consensus to maintain that sentiment. Investors should expect 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.
The author holds shares in Palantir.
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.
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