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Shares of tech company Palantir (NYSE: PLTR) surged over 24% in the last week following its Q1 results. Palantir reported revenue of $525 million with adjusted earnings of $0.05 per share, compared to estimates of $506 million and $0.04 per share, respectively.
Despite the recent uptick, Palantir stock is trading 75% below all-time highs, valuing it at a market cap of $21 billion.
What impacted Palantir sales and earnings in Q1 of 2023?
Palantir’s sales were up 18% year over year as commercial revenue in the United States rose 26%. Comparatively, its commercial customers rose 50% to 155 in Q1 from 103 in the year-ago period.
Palantir also reported a second consecutive quarter of GAAP net income as profits stood at $17 million. The company claimed it would continue to report a positive net income in each of the next three quarters.
Palantir reported its first-ever quarter of a positive net income in Q4 of 2022, when profits stood at $31 million. It also forecast sales between $528 million and $532 million in Q2 and between $2.19 billion and $2.24 billion in 2023.
Palantir expects the growth in artificial intelligence verticals to act as a long-term tailwind for its business segments. In its shareholder letter it states, “The arrival of the latest large language models, which have provided the world with the first real hints of more generalizable forms of artificial intelligence, will transform enterprise software.”
Palantir already started developing its foundational architecture required to leverage the power of new AI technologies within the context of privately held datasets. It's quite evident that a platform that can integrate foundational software architecture with large language models will be critical for the latter to evolve and enhance the value of large enterprises.
What next for Palantir stock price and investors?
In the last 12 months, Palantir generated $1.23 billion in sales from its customers in the U.S., indicating a growth rate of 28% year over year, compared to $954 million in the year-ago period. Despite a sluggish macro-environment, Palantir managed to increase the top line by almost 30% in its most important market, which is quite remarkable.
Moreover, its total customer count surged 41% to 391, while total contract value was up a stellar 60% at $397 million. It ended the March quarter with billings of $614 million, an increase of 25% year over year.
Palantir also ended Q1 with 64 deals with at least $1 million in annual revenue. Moreover, 22 of these deals were worth more than $5 million, and eight were more than $10 million. Similar to most other tech companies, Palantir’s business is asset-light, reporting a gross margin of 81% in the quarter.
Palantir has enough liquidity with cash reserves of almost $3 billion, providing the company with room to grow organically and via acquisitions. Additionally, it also has $950 million in undrawn credit facilities.
Its free cash flow rose to $189 million in Q1 of 2023, up from $30 million in the last year. Its free cash flow margin has widened to 36%, up from less than 8% in Q1 of 2022.
Is PLTR stock a buy right now?
Analysts expect Palantir’s growth rate to decelerate to 15.9% to $2.2 billion in 2023, indicating a price-to-sales multiple of 10x. Its price-to-earnings multiple is also high at 45x. However, its bottom line is forecast to expand by 73% annually, which is quite exceptional.
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