Palantir (PLTR)

Data-mining and analytics company Palantir (NYSE:PLTR) announced better-than-expected revenue in Q1 CY2025, with sales up 39.3% year on year to $883.9 million. On top of that, next quarter’s revenue guidance ($936 million at the midpoint) was surprisingly good and 4.2% above what analysts were expecting. Its non-GAAP profit of $0.13 per share was in line with analysts’ consensus estimates.

Company Overview

Started by Peter Thiel after seeing US defence agencies struggle in the aftermath of the 2001 terrorist attacks, Palantir (NYSE:PLTR) offers software as a service platform that helps government agencies and large enterprises use data to make better decisions.

Organizations generate a lot of data that is stored in silos, often in incompatible formats, making it slow and costly to extract actionable insights, which in turn drives demand for modern cloud-based data analysis platforms that can efficiently analyze the siloed data.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last three years, Palantir grew its sales at a decent 23.7% compounded annual growth rate. Its growth was slightly above the average software company and shows its offerings resonate with customers.

This quarter, Palantir reported wonderful year-on-year revenue growth of 39.3%, and its $883.9 million of revenue exceeded Wall Street’s estimates by 2.5%. Company management is currently guiding for a 38% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 27.5% over the next 12 months, an acceleration versus the last three years. This projection is eye-popping and suggests its newer products and services will fuel better top-line performance.

Billings is a non-GAAP metric that is often called “cash revenue” because it shows how much money the company has collected from customers in a certain period. This is different from revenue, which must be recognized in pieces over the length of a contract.

Palantir’s billings punched in at $939.3 million in Q1, and over the last four quarters, its growth was fantastic as it averaged 38.6% year-on-year increases. This alternate topline metric grew faster than total sales, meaning the company collects cash upfront and then recognizes the revenue over the length of its contracts - a boost for its liquidity and future revenue prospects.

The customer acquisition cost (CAC) payback period measures the months a company needs to recoup the money spent on acquiring a new customer. This metric helps assess how quickly a business can break even on its sales and marketing investments.

Palantir is extremely efficient at acquiring new customers, and its CAC payback period checked in at 14.7 months this quarter. The company’s rapid recovery of its customer acquisition costs indicates it has a highly differentiated product offering and a strong brand reputation. These dynamics give Palantir more resources to pursue new product initiatives while maintaining the flexibility to increase its sales and marketing investments.

What makes the software-as-a-service model so attractive is that once the software is developed, it usually doesn’t cost much to provide it as an ongoing service. These minimal costs can include servers, licenses, and certain personnel.

Palantir’s robust unit economics are better than the broader software industry, an output of its asset-lite business model and pricing power. They also enable the company to fund large investments in new products and sales during periods of rapid growth to achieve higher profits in the future. As you can see below, it averaged an excellent 80% gross margin over the last year. That means Palantir only paid its providers $19.99 for every $100 in revenue.

In Q1, Palantir produced a 80.4% gross profit margin, marking a 1.2 percentage point decrease from 81.7% in the same quarter last year. Palantir’s full-year margin has also been trending down over the past 12 months, decreasing by 1.2 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs.

Palantir has been a well-oiled machine over the last year. It demonstrated elite profitability for a software business, boasting an average operating margin of 13%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Palantir’s operating margin rose by 4.6 percentage points over the last year, as its sales growth gave it operating leverage.

This quarter, Palantir generated an operating profit margin of 19.9%, up 7.2 percentage points year on year. The increase was solid, and because its gross margin actually decreased, we can assume it was more efficient because its operating expenses like marketing, R&D, and administrative overhead grew slower than its revenue.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Palantir has shown terrific cash profitability, driven by its lucrative business model and cost-effective customer acquisition strategy that enable it to stay ahead of the competition through investments in new products rather than sales and marketing. The company’s free cash flow margin was among the best in the software sector, averaging an eye-popping 47.2% over the last year.

Palantir’s free cash flow clocked in at $370.4 million in Q1, equivalent to a 41.9% margin. This result was good as its margin was 18.5 percentage points higher than in the same quarter last year, but we note it was lower than its one-year cash profitability. Nevertheless, we wouldn’t put too much weight on a single quarter because investment needs can be seasonal, causing short-term swings. Long-term trends are more important.

Over the next year, analysts predict Palantir’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 47.2% for the last 12 months will decrease to 40.2%.

Big corporations like Palantir are attractive to many investors in times of instability thanks to their fortress balance sheets that buffer pockets of soft demand.

Palantir is a profitable, well-capitalized company with $5.43 billion of cash and $244.6 million of debt on its balance sheet. This $5.19 billion net cash position gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We enjoyed seeing Palantir beat analysts’ revenue and adjusted operating income expectations this quarter. We were also glad it raised its full-year revenue and adjusted operating income guidance. Zooming out, we think this was a solid print. Expectations were sky-high going into the results, however, and shares traded down 5.6% to $117.01 immediately after reporting.

Updated: June 14, 2025 at 10:15 PM EDT

When considering an investment in Palantir, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

There are multiple reasons why we think Palantir is an amazing business. To begin with, its revenue growth was solid over the last three years, and its growth over the next 12 months is expected to accelerate. And while its forecasted free cash flow margin suggests the company will ramp up its investments next year, its bountiful generation of free cash flow empowers it to invest in growth initiatives. On top of that, Palantir’s efficient sales strategy allows it to target and onboard new users at scale.

Palantir’s price-to-sales ratio based on the next 12 months is 84.4x. A lot of good news is certainly baked in given its premium multiple, but we’ll happily own Palantir as its fundamentals really stand out. Investments like this should be held patiently for at least three to five years as they benefit from the power of long-term compounding, which more than makes up for any short-term price volatility that comes with high valuations.

Wall Street analysts have a consensus one-year price target of $101.32 on the company (compared to the current share price of $137.62).