outline
There was a Palantir earnings announcement. It was a performance that exceeded market expectations. However, the stock price is sluggish and performance is still controversial. It is still not enough to calm the overvaluation.
Is it simply a bubble fueled by the popularity of AI? Even if it's a bubble, if you can maintain it at this level, isn't it a skill?
Palantir Performance Review (1Q)
It was a good performance. First of all, sales recorded $634.3 million, a 20.8% increase compared to the same period last year. In particular, commercial sector sales increased by 26.7% to $299 million, leading the growth, and the number of customers increased significantly from 155 to 262, which is encouraging. Government sector sales also increased 15.9% to $335 million. In the first quarter alone, 87 large contracts worth more than $1 million were signed.
Sales sector amount (USD million) Rate of change compared to the same period last yearTotal sales 634.3+20.8%Commercial sector sales299.0+26.7%- US commercial sector 150.0+40.2%Government sector sales 335.0+15.9%- US government sector 257.0+11.7%Table 1. 1st quarter sales performance summary
The profitability aspect has also improved significantly. It increased approximately six-fold from $16.8 million to $105.5 million in the same period last year. However, as it was a loss-making company until the end of 2022, it is difficult to fully evaluate the growth of net profit in terms of ratio.
As expected, the growth engine in the commercial sector was AIP, and in the government sector, the increased demand for artificial intelligence in the military sector appears to have worked to its advantage.
Palantir’s growth engine, AIP
If you are an investor in Palantir, you need to think about the meaning of AIP.
Starting around April 2023, the company's stock price began to soar. It is a little different from NVIDIA and Super Micro Computer, which were at the center of AI issues, which rose in earnest from the beginning of the year. This means that the soaring point is not simply the AI theme. Around that time, Palantir launched AIP.
Palantir's profit model is supplying big data software for enterprises.
If you just say this, you might think of CAD or MS Office. In fact, Palantir's software is close to in-house computerization programs such as ERP or groupware. Probably anyone who has participated in the work will know. Even though the result looks shabby, it is a very tedious task.
Naturally, the data and types of data that are meaningful to each company, as well as data handling procedures and methods, are inevitably different, so it is inevitable that there will be a process of producing customized software through constant consultation and feedback.
The fact that such a company has begun to put the word Platform on the front page means that it has a basic foundation that can be used universally by various occupations and a variety of options that can be tailored to the characteristics of each user. This also means that sufficient data on various industries and occupations has been accumulated.
On the other hand, there is also the possibility that customers will use Palantir's servers, creating room for rate increases.
From a customer's perspective, purchasing a custom-made suit and a ready-made suit are very different in terms of accessibility and efficiency.
If we can recommend clothes that fit the customer's body type and taste even with pre-made suits based on the customer data we have accumulated over the years, we will be able to kill both the profitability of customized clothing and the productivity of ready-made clothing.
However, what if the quality of ready-made clothes is not good? No matter how platform you use it, the results may not be as good as expected.
Can Palantir’s overvaluation be resolved?
Of course, net profit increased by 528%, but as mentioned before, this is due to the base effect and it is difficult to expect this growth to continue.
In that respect, sales growth of only 20% is a bit painful.
It is also true that there is room for improvement in profit margins due to AIP. If platform-type services are successfully established, there is significant room for cost reduction.
But on the other hand, how much will it decrease? The question remains.
PLTRDDOGADSKTEAMSales Gross Margin (TTM)81.16%81.42%91.58%81.86%Table 2. Peer group gross margin comparison
As shown in the table above, Palantir's gross margin exceeds 80%. It is not much different from DATADOG (DDOG), which is often compared to Palantir, and peer company Atlassian Corp.
Even if the margin improves to the level of AutoDesk, which provides a different service from Palantir, its scale is somewhat limited, and looking at DDOG, which is more similar to Palantir but already has a diverse subscriber pool, it is questionable whether AIP will be able to improve the margin to a meaningful level.
In the end, it may be an obvious conclusion, but significant increases in sales and subscribers must be confirmed to prove that Palantir's AIP is not an empty expectation.
conclusion
It cannot be said that it was underperforming by any means, but the performance was not enough to quell the controversy over its overvaluation so far. The growth in sales and profits is encouraging, but questions remain about sustainability. It is clear that it is a company with an attractive story and sufficient potential to maintain its high value. However, personally, I think it is still too early. We need to watch the performance of the AIP platform a little more closely.