Palantir Technologies (NYSE:PLTR) reported third-quarter results on Nov. 9, meeting earnings expectations and delivering a revenue beat. The company continues to add new customers at a healthy pace with strong growth projected in the coming years. Though government revenue dipped during the quarter, the compelling strides in Palantir’s commercial segment have more than made up for it. While PLTR stock is down more than 15% since the earnings report, it is an exciting growth play.
Even with the post-earnings sell-off, PLTR stock has easily outpaced the S&P 500 over the past 12 months, rising 45% compared to 29% for the broader market index. Yet, shares are trading 50% below their all-time high of $45, made in late January.
Though Palantir has a relatively high valuation for a defense IT business, it is likely to grow into its valuation. And with shares trading well off their highs, PLTR stock is attractive at this time.
Palantir Delivers Another Strong Quarter
For the third quarter, Palantir Technologies reported revenue of $392 million, up 36% year over year and topping the consensus estimate of $385 million. It reported an adjusted loss of 4 cents per share, in line with what Wall Street was expecting.
Government contracts still account for the bulk of Palantir’s revenue, coming in at $218 million for the quarter. While this fell short of expectations of $235.9 million, it was up 34% from a year ago.
The true long-term potential of Palantir, though, lies with its commercial business, where its performance has been stellar.
Q3 commercial business revenue jumped 37% to $174 million, easily beating estimates of $148.6 million. In the U.S., Palantir saw a 103% year-over-year surge in commercial revenue. So far this year, the company has seen its commercial customer count increase by 135%.
Looking ahead, the company estimates it will generate $418 million in fourth-quarter revenue. Analysts had been forecasting $402 million. For fiscal 2021, Palantir expects revenue of $1.53 billion, which would represent growth of just over 40%. On top of that, management forecasts annual revenue growth of at least 30% through 2025.
Robust Cash Flow Generating Ability
Unlike many companies during their high-growth stage, Palantir doesn’t require massive capital expenditures to expand its business. Its asset-light business model has generated millions in revenue with relatively slim capital expenditures. Furthermore, it has been generating sizeable cash flows on a consistent basis.
The first nine months of the year produced $240 million in operating cash flows with less than $10 million in CAPEX. This has translated into adjusted free cash flows of roughly $320 million for the first three quarters of the year, with more than $400 million expected for the full year.
Naturally, a lot of these cash flows are attributable to the company’s continual share issuances. Its share count grew by more than 3% in Q3 from the Q2 average, which amounts to a dilution rate of over 10%. However, the share count dilution is likely to slow in the future.
All in all, Palantir boasts a pristine balance sheet, which offers it incredible financial flexibility. It ended the third quarter with a colossal cash balance of $2.3 billion and zero debt.
The Bottom Line on PLTR Stock
Palantir delivered strong results in the third quarter, and investors should expect more of the same for the foreseeable future.
Its commercial business was the star of the quarter, outpacing total revenue growth. Though falling revenue in its government-sector business is a bit worrisome, Palantir’s commercial business will most likely be its main catalyst going forward.
PLTR stock is a tremendous long-term play in the big data realm.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.