Palantir Is Set To Beat Free Cash Flow Expectations, Here's Why

Seeking Alpha2022-02-10

SummaryPalantir is expected to submit its earnings card on Thursday, February 17, 2022.Momentum in the private enterprise business could see Palantir materially beat its own guidance for FY 2021.FY ...

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Comments

Lion91
2022-02-11
Lion91
Like for like
Mr Soh
2022-02-11
Mr Soh
👍
蒋小鱼
2022-02-11
蒋小鱼
Have to hold.........😪
May168
2022-02-10
May168
Diamond hands pl hodl
superpopo
2022-02-10
superpopo
Ok
SK19
2022-02-10
SK19
💪💪💪

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While the tech sector and growth plays are apparently out of favor now, Palantir’s approaching earnings date could supply a catalyst for a new upleg. Palantir is set to report record revenues and free cash flow next week, and may initiate strong free cash flow guidance for FY 2022. Since an acceleration of growth in the private enterprise business can also be expected for Q4'21, shares of Palantir are a buy before the company reports earnings!Why Palantir could be set to crush earnings expectationsThe earnings date for Palantir is approaching and the software analytics firm could supply an earnings card that is much better than expected.Palantir’s guidance for the fourth-quarter and for the 2021 fiscal year calls for:Q4’21 revenues of $418M, implying 7% quarter over quarter growthQ4’21 adjusted operating margin of 22%FY 2021 revenues of $1.53B, implying 40% revenue growth year over yearFY 2021 free cash flow of at least $400M.Given that momentum in Palantir’s (private enterprise) business accelerated throughout 2021 and that the firm increased its free cash flow guidance for FY 2021 more than once last year, I believe Palantir is going to report much better results for the fourth-quarter and for the full-year than what the company itself guided for. The result could be a major revaluation of Palantir’s shares next week, especially if an impressive earnings card goes together with strong free cash flow guidance for FY 2022.For the fourth-quarter, I expect revenues of $725M, $7M above guidance and an adjusted operating margin of 28-30%, significantly above Palantir’s margin guidance of 22%. The reason for these optimistic predictions is that more commercial clients will likely have taken up Palantir’s services in the fourth-quarter and the private enterprise business has seen a consistent revenue acceleration last year. More clients have signed on to Palantir’s software platform throughout the year and the company expanded its client base materially in FY 2021. Palantir added 64 clients to its software platform last year which calculates to an average net addition of 21 new paying clients per quarter. However, Palantir’s customer acquisition also accelerated in every single quarter in 2021, showing real momentum that has been reflected in Palantir’s significant revenue and free cash flow ramp.What is also making a difference for Palantir besides a growing commercial client book is growth in average revenue per customer. The average top twenty customer spend $41M on Palantir’s services in the third-quarter which is a 35% increase over the year-earlier period. I estimate that Palantir, due to strong customer acquisition in Q4'21, will have grown this figure to $43M by year-end 2021.In the third-quarter, Palantir’s commercial customer count increased a massive 46%, quarter over quarter, as more customers adopted Palantir’s Foundry for Builders. Palantir reported accelerating commercial revenue growthe very single quarter in FY 2021 and could close in on 40% commercial revenue growth, year over year, in the fourth-quarter. This momentum in the private enterprise market strongly raises the possibility of a material free cash flow outperformance for FY 2021.PalantirThe most important financial figure Palantir is going to report next week will be free cash flow. If I had to pinpoint one specific financial number that could make or break Palantir’s future, it would be this one.What investors should remember is that Palantir a year ago expected FY 2021 to only be a free cash flow breakeven year. The firm started to materially increase its free cash flow guidance in the first-quarter 2021. Palantir guided for at least $400M in free cash flow for FY 2021, but the company already secured 80% of its low-case free cash flow guidance by the end of Q3’21. Third-quarter free cash flow was $119M, showing 139% quarter over quarter growth. At the same time, the free cash flow margin improved from 13% to 30%, meaning revenue to free cash flow conversion improved dramatically in the second half of the year. Palantir would therefore only have to report $80M in Q4'21 free cash flow to meet its full-year FCF guidance, which is something Palantir should easily be able to do. I estimate that Palantir could report FY 2021 free cash flow of up to $460M based off of growing average revenue per customer, rising Foundry for Builders adoption, a higher commercial customer count and a free cash flow margin of 30%.The most interesting part of Palantir’s earnings card next week, however, will be the free cash flow guidance for FY 2022. I believe this guidance especially has the potential to power Palantir’s shares higher.Because of the momentum in Palantir’s business, I am raising my revenue estimate for FY 2022 to $2.13B, 5% above my last estimate of $2.03B. Assuming a 35% free cash flow margin, Palantir could generate $745M in free cash flow in FY 2022, indicating 86% year over year growth potential (calculated based off of Palantir’s full-year FCF guidance of $400M). Free cash flow, however, could be even better. Palantir started a new business called Foundry for Crypto lately, which is an entirely new segment that is targeting the rapidly evolving market for digital currencies. Palantir started the business in 2021 and is going to roll out services at scale in 2022. If this business gets a good start, it wouldn’t take much for Palantir to double its free cash flow, year over year, in FY 2022.Palantir is cheapPalantir’s earnings card for FY 2021 and guidance for FY 2022 will have an impact on estimates. Currently, revenue estimates are anchored at around $2.0B for FY 2022. If Palantir’s guidance calls for more than 30% revenue growth this year- which I believe is very likely- revenue predictions will be refreshed and shares of Palantir will have a lower sales multiplier factor.Data by YChartsRisks with PalantirSlowing revenue and free cash flow growth, weaker free cash flow and operating margins, a disappointing FCF guidance for FY 2022 are all risks for Palantir. The canary in the coal mine is likely slowing growth in the private enterprise business, because this is what supports Palantir's revenue and free cash flow gains right now.Final thoughtsI believe Palantir is going to crush it next week. Specifically, I expect that Palantir will outperform its own guidance regarding Q4’21 and full-year revenues and free cash flow. Average revenue per customer should also continue to grow. The free cash flow guidance for FY 2022, however, could be a real beauty considering Palantir’s revenue acceleration in the private enterprise business and stronger free cash flow (margins) in the second half of the year. If FY 2022 revenue and FCF guidance is strong- which I believe it will be- Palantir is up for a major revaluation in the stock market!","kind":"news","is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":9092376880,"gmtCreate":1644544246387,"gmtModify":1676533939432,"author":{"id":"3561201203930690","authorId":"3561201203930690","name":"Lion91","avatar":"https://static.tigerbbs.com/7ea44be8fbae5e18211977f4b4c51d1e","vip":1,"hat":"https://static.tigerbbs.com/b073a07f77dbe6b3bec6b12311fde6bd","crmLevel":2,"crmLevelSwitch":0,"idStr":"3561201203930690","authorIdStr":"3561201203930690"},"htmlText":"Like for like","listText":"Like for like","text":"Like for like","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9092376880","repostId":1115712053,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9092370688,"gmtCreate":1644543724978,"gmtModify":1676533939321,"author":{"id":"4104666960164420","authorId":"4104666960164420","name":"Mr Soh","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"4104666960164420","authorIdStr":"4104666960164420"},"htmlText":"👍","listText":"👍","text":"👍","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9092370688","repostId":1115712053,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9092969158,"gmtCreate":1644509675166,"gmtModify":1676533935633,"author":{"id":"4094549885200800","authorId":"4094549885200800","name":"蒋小鱼","avatar":"https://static.tigerbbs.com/e246cd92d12ee8510cba3c63485f6922","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"4094549885200800","authorIdStr":"4094549885200800"},"htmlText":"Have to hold.........😪&nbsp;","listText":"Have to hold.........😪&nbsp;","text":"Have to hold.........😪","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9092969158","repostId":1115712053,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9092919155,"gmtCreate":1644506726851,"gmtModify":1676533934995,"author":{"id":"4091627897322240","authorId":"4091627897322240","name":"May168","avatar":"https://static.tigerbbs.com/e7814d9dbbebfd7d55db30062d9856e7","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"4091627897322240","authorIdStr":"4091627897322240"},"htmlText":"Diamond hands pl hodl","listText":"Diamond hands pl hodl","text":"Diamond hands pl hodl","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9092919155","repostId":1115712053,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9092047662,"gmtCreate":1644500692375,"gmtModify":1676533933824,"author":{"id":"3584161011431512","authorId":"3584161011431512","name":"superpopo","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3584161011431512","authorIdStr":"3584161011431512"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9092047662","repostId":1115712053,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":9092043671,"gmtCreate":1644499585375,"gmtModify":1676533933649,"author":{"id":"3577755293052640","authorId":"3577755293052640","name":"SK19","avatar":"https://static.tigerbbs.com/ee6b25332525b16399562f21677fa1cd","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3577755293052640","authorIdStr":"3577755293052640"},"htmlText":"💪💪💪","listText":"💪💪💪","text":"💪💪💪","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/9092043671","repostId":1115712053,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":238,"commentSize":35,"repostSize":0,"favoriteSize":5,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; 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