Mizuho's Gregg Moskowitz on Palantir earnings: Pretty remarkable growth given revenue totals

Palantir's Q4 Performance and Valuation: A Detailed Analysis

Key Concepts:

• Revenue Growth Acceleration
• US Commercial Business Expansion
• Rule of 40
• Valuation Multiple (Price-to-Sales Ratio)
• Government Contracts
• AI Software Demand
• Inbound Enterprise Inquiries

1. Financial Performance and Guidance

• Record Revenue: Palantir surpassed $1 billion in quarterly revenue for the first time.
• Revenue Growth: Grew revenue 48% year-over-year, beating guidance by seven percentage points. This is the largest percentage beat ever for the company.
• Annualized Revenue: The company is now at $4 billion of annualized revenue.
• Revised Guidance: Palantir revised its full-year outlook above previous expectations and even above Wall Street's expectations.
• US Commercial Business Growth: The US commercial business, which accounts for a little over 30% of the company's revenue, revised its guidance from at least 54% to at least 85% revenue growth.
• Customer Spending: Palantir's top 20 customers are spending an average of $75 million per annum.

2. Stock Performance and Valuation Concerns

• Stock Surge: Palantir's stock has increased by 600% over the past year.
• Valuation Multiple: The stock is trading at approximately 80 times next year's revenue.
• Industry Comparison: The average price-to-sales ratio for high-growth software companies is between 12 and 13. Palantir's valuation multiple is approximately six times higher than the basket of high-growth software companies. Palantir's valuation multiple is A3X premium to Cloudflare.

3. Rule of 40 and Justification of Premium

• Rule of 40 Definition: Rule of 40 combines revenue growth with operating margins, with 40 or more being considered a standout result.
• Palantir's Rule of 40 Score: Palantir's Rule of 40 score for the quarter was over 90.
• Comparison to Software Peers: Palantir's Rule of 40 score is roughly two times higher than the rest of the best-in-class software companies.
• Justification of Premium: Palantir deserves a substantial premium compared to its peers due to its high Rule of 40 score.

4. Government Contracts and Geopolitical Factors

• US Army Contract: The US Army might purchase services of up to $10 billion from Palantir over a decade.
• Driving Factors: The contract is heavily driven by the US and the escalating geopolitical environment.
• Contract Details: The $10 billion is a cap on spending, not a guaranteed amount, but it will streamline the procurement process.

5. Challenges in Analyzing Palantir

• Secrecy: Government contracts are often shrouded in secrecy.
• Limited Channel Checks: Limited ability to conduct channel checks due to direct deals and secrecy.
• Inbound Inquiries: A significant uptick in inbound inquiries from enterprises indicates growing commercial interest.

6. Synthesis/Conclusion

Palantir is experiencing rapid growth, driven by strong demand for its AI software and significant government contracts. While its valuation is high compared to its peers, its exceptional Rule of 40 performance justifies a premium. The challenge lies in determining the extent of that premium and the risk-reward profile, given the limited information available due to the nature of its business. The increasing interest from enterprises suggests potential for further commercial expansion.