The Revenue Mix: Shifting but Slightly
Palantir Technologies (PLTR -1.02%) has been growing steadily, expanding its operations in analytics and artificial intelligence (AI). However, concerns have been raised about the company’s dependency on government contracts for growth. The recent change in administration’s policies and contract renewals might introduce uncertainty.
In its most recent quarterly report, Palantir’s government revenue stood at under $308 million, surpassing its commercial revenue of $251 million by 23%. Two years ago, the revenue mix was slightly different, with government revenue at $218 million, 25% higher than the $174 million from commercial clients. While there has been a slight shift since then, Palantir remains reliant on government contracts.
Potential Changes in the Revenue Mix
With AI gaining mainstream recognition and companies increasingly seeking ways to leverage data, Palantir has witnessed a surge in demand. Notably, its commercial revenue experienced a significant uptick in the last quarter.
Reviewing the past three quarters since the beginning of 2023, the commercial segment has shown substantial growth, with at least 8% quarter-over-quarter revenue increase in two of the three quarters. Palantir has even launched AI bootcamps to assist businesses in discovering AI applications using their software, indicating a promising trend that may continue into 2024 and beyond.
While government contracts currently contribute the majority of Palantir’s revenue, the company’s continuing expansion into the commercial market suggests that its reliance on government contracts may diminish over time. This factor mitigates concerns for potential investors.
Investors have been drawn to Palantir, with the stock’s value rising by 175% this year. However, it is worth noting that the stock is not inexpensive, trading at 19 times revenue and 12 times book value. Even future earnings estimates indicate a high multiple of over 60 times profitability.
Nevertheless, considering Palantir’s recent profitability and anticipated earnings growth, the stock can still provide a solid long-term investment opportunity for those willing to hold it for multiple years.