Palantir Q1-25 | Earning & Call
Impressive...
If you don’t know about Palantir, everything you need is here.
Palantir continues to deliver a mean to have personalized, automated & data-based decisions through customizable AI Agents, which is the future as it allows companies to optimize themselves through AI.
“The winners won't be determined by size, but by adaptability.”
Overview.
Revenue. $862.13M | $883.86M | 2.52%
EPS. $0.13 | $0.13 | 0.00%
$18M of buybacks.
Business.
The bull case remains the same to me: commercial customers. This is where I believe most of the growth will come in the next years as companies start to wake up to the power of AI agents, with Palantir being the best at it as they allow customization of those through AIP & leverage amount of internal data organized into the ontology.
Data is very, very healthy & highlights a growing demand.
Customer base is growing rapidly with most of the growth coming from commercial customers & more specifically, American commercial customers - revenues up 71% YoY for this branch & geography. Demand from Europe is decreasing although the NATO contract could change that - or they’ll be left behind.
Governmental branch remains the major source of revenues with significant growth - 45% YoY, & accelerating. A tendency which should continue after the announcement of their partnership with NATO’s 32 member states for Maeven, which should also serve as an advertising campaign for European governments.
Palantir’s revenue sources are pretty balanced with their top 20 customers being responsible for “only” 45% of total TTM revenues. It does seem to be a lot but is declining & far from being over-concentrated to start with.
The tendency on new deals is healthy with a strong growth & many more >$1M deals closed which confirms the strong demand for their products as those are usually the entrance tickets & very often followed by deeper commitments.
“On the ground, things are accelerating. Customers are getting started, then expanding in quick succession. A large healthcare company did a boot camp with us in December, and five weeks later, converted to a five-year, $26 million ACV enterprise agreement. A global bank started a pilot with us in Q4 2024, signed a $2 million engagement a month later, then expanded to a three-year, $19 million dollar ACV engagement four months after that. A Fortune 500 healthcare company began working with us in Q2 2024 and last quarter signed a five-year $10 million ACV conversion deal.”
A very healthy & growing tendency.
Note that Palantir should thrive in the actual unstable environment as their entire software is meant to help companies make data-driven choices & have clear answers on the best course of action during troubled times. Companies with tariffs or supply chain issues would unlock massive value with Palantir’s AIP.
“Green Suitors developed the Hurricane Helene rescue common operating picture in five days. Next time, they will have AI agents do it for them in five minutes.”
Palantir’s AIP thrives in complex situations & actual conditions shouldn’t be an issue; on the contrary, they could be the reason for many to reach out & have a demo - and maybe be part of the story.
Financials.
No surprises.
Revenues are up 39% YoY while costs are following the growth which means gross margins remain stable around 80% as we’re still talking about software companies. Expenses though aren’t really growing, which is impressive - Palantir doesn’t rely on advertising or large commercial teams hence this stability. But as revenues grow & expenses remain flat, operating margins increase. Small increase in interest income & decrease in other expenses is slightly boosting net margins but the improvement would be strong with or without, now at 24.6% from 16.7%.
In terms of cash, the company is closing with $5.4B of net debt & $370M of FCF impacted by $155M of SBCs which is huge and diluted total shares by 6.4% YoY despite buybacks. This is a big complaint from many but Palantir has a culture of meritocracy & believes those who work there deserve to be rewarded with high compensations - and this should continue as management confirmed they’ll hire more & better profiles this year.
Motivation makes excellence & I remain convinced Palantir wouldn’t exist today, not as we know it, without those compensations. It is a feature, not a bug.
Guidance.
More excellence for the future, as the FY25 guidance’s midpoint was raised.
We are talking about a 36% YoY growth FY25 which would be a rapid acceleration YoY, and 38% YoY for Q2-25 which seems to point out that quarterly growth is reaching a plateau although the FY25 guidance would point to a continuous acceleration through the year. In brief, nothing to worry about.
My Take & Valuation.
The quarter is nothing but excellent. It continues to push the bull case forward with data proving a strong demand for AI & a strong conversion as most companies are convinced by the product & grow their subscriptions. This is shown in the business data, the financial data, their deals & the guidance.
The only problem for Palantir is its actual valuation, actually trading at 82x sales while down 12% since the company reported earnings. I think the market is reaching its maximum optimism & it might be hard to push further without massive news. It's hard to ask more than what this quarter gave & yet, the stock fell.
It's also hard to run my usual valuation model on Palantir as the company continues to accelerate and it's impossible to know where & when it will stop - it sure will one day & will be punished for it as any growth stock.
This model assumes a 35% & 30% CAGR growth until FY26 & FY29 respectively, 25% net margins, 5% dilution & P/S at x20.
This is just to have an idea of what seems correct, but my opinion on Palantir is that it will one day be sold on bad news or disappointing earnings & will be pounded, hence 20x sales won't be justified anymore - maybe by fundamentals but the market won't accept it.
It seems like an everything or nothing situation to me, I struggle to imagine anything else except for a global liquidity sell-off where valuation & fundamentals could be decorrelated entirely. If that happens, Palantir will be #1 on my buying list.
Until then, I am holding my shares & do not intend to do much more.