Palantir stock goes to the moon after shocking financial report

Earnings season is in full swing, but investors are still focused on a big item: artificial intelligence (AI). Much of the buzz surrounding AI is reserved for the “Magnificent Seven” – a catchy nickname that includes the mega-cap tech giants. microsoft, apple, alphabet, Amazon, Nvidia, Metaand tesla. But that doesn’t mean other companies aren’t riding the wave.

Although the market capitalization is only $51 billion, Palantir Technologies (PLTR 2.75%) While it may not be seen in the same light as big tech companies, Palantir is moving into this space as well, and investors noticed it last week.

Palantir stock soared about 50% over the next five business days after the company released its surprising fourth-quarter earnings report after the market closed on February 5th.

From revenue to operating margins to cash flow to customer acquisition strategies, Palantir offers no shortage of key performance metrics that have investors salivating. Let’s analyze this report and how the company’s current performance will affect its future. Now may be a good time to invest in Palantir, which is driving the AI ​​arms race despite operating in the shadow of mega-cap technology.

best customer acquisition

2023 was full of exciting developments in the world of artificial intelligence. Microsoft has invested billions of dollars in OpenAI, the startup behind ChatGPT. Alphabet and Amazon soon followed suit, each investing in a competing platform called Anthropic.

To set itself apart, Palantir created a unique lead generation strategy to drive interest in its newest product, the Artificial Intelligence Platform (AIP). Specifically, the company has started hosting immersive seminars it calls “boot camps.” During these sessions, attendees will have the opportunity to try out Palantir’s software and gain a deeper understanding of how the company can play a key role in generative AI-driven use cases.

During Palantir’s fourth-quarter earnings call with analysts, investors learned that the company completed more than 500 bootcamps last year. In 2022, he conducted only 92 cases. It’s clear that bootcamps are in high demand, but the company’s thorough analysis of customer growth is worth a look.

Palantir had 497 customers in the fourth quarter, an increase of 35% year over year. Palantir is seeing a surge in demand, especially in the private sector, with customer numbers increasing by 44% annually.

This is important because Palantir has long been criticized by Wall Street bears for being heavily reliant on government deals. It is clear that the advent of AIP has increased demand and businesses outside of traditional public sector operations are thriving.

Image source: Getty Images.

Profit margins are expanding, cash flow is deteriorating

The graph below shows Palantir’s annual revenue over the past five years.

Image source: Palantir.

Palantir was founded in 2003, and the graph shows that it took the company almost 20 years to reach the $1 billion annual revenue milestone. Yet, in just three short years, the company’s revenue doubled. This growth is surprising given how challenging the macroeconomic outlook has been in recent years, coupled with a highly competitive environment.

Perhaps more importantly, Palantir has been growing its margins healthily, and that’s spilling over to the bottom line. Adjusting for non-cash expenses such as stock-based compensation, Palantir’s operating margin expanded from 22% in 2022 to 28% in 2023. Additionally, free cash flow increased 260% year over year to $730 million.

Things to consider

The combination of sales growth and margin expansion strengthened Palantir’s liquidity. As of Dec. 31, the company had $3.7 billion in cash and marketable securities and no debt on its balance sheet.

While this is encouraging, investors should be wary of the disconnect between the company’s customer growth and revenue acceleration. Last year, Palantir’s total revenue only increased by about 17%, even though the number of customers increased by his 35%.

To me, this shows that Palantir is playing the long game when it comes to AI. In other words, bootcamps are just a low-cost mechanism to get customers into the pipeline and convert them into paying users of the company’s software. However, Palantir has the ability to upsell and cross-sell customers over time by combining use case discovery rooted in AI with enhanced customer development efforts. Therefore, the company should see strong earnings acceleration over time.

I would caution investors not to fall for the hype surrounding Palantir. It will be important to focus on the long-term outlook and assess the company’s position among AI-focused enterprise software providers.

For me, the fourth quarter report was a preview of what investors can continue to expect. With the growing presence of artificial intelligence software in IT budgets, Palantir should be well-positioned to benefit from long-term tailwinds. Now looks like a great time for both new and existing investors to raise stock and prepare to hold it for the long term. It seems like the run has only just begun.