Palantir Technologies vs. Salesforce: Which Stock Should You Buy?
Choosing between $Palantir Technologies Inc.(PLTR)$ and $Salesforce.com(CRM)$ is akin to deciding between a thrilling roller coaster ride and a scenic train journey. Both have their allure, but the experience—and investment outcomes—can be vastly different. Let's delve into the financials and see which stock might be the wiser choice.
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Revenue: The Financial Giants
First, let's address the revenue. Salesforce is a titan in the software industry, flaunting impressive revenue numbers. In their fiscal Q1 2024, Salesforce generated a whopping $9.13 billion, up 11% year-over-year (Y/Y). This includes Subscription & Support Revenue of $8.59 billion, up 12% Y/Y. In comparison, Palantir, while noteworthy, plays in a smaller league. For Q1 2024, Palantir reported revenue of $634 million, up 21% Y/Y and 4% quarter-over-quarter. Clearly, Salesforce takes the crown in this category.
Profit Margin: David vs. Goliath
Profit margin is another crucial metric. $Salesforce.com(CRM)$, with its well-established business model, enjoys a GAAP operating margin of 18.7%, up 1,370 basis points Y/Y, and a non-GAAP operating margin of 32.1%, up 450 basis points Y/Y. $Palantir Technologies Inc.(PLTR)$, still in its growth phase and reinvesting heavily in its operations, reported a GAAP net income of $106 million, representing a 17% margin, and a GAAP income from operations of $81 million, representing a 13% margin. While these figures are commendable for a growing company, they pale in comparison to Salesforce's profitability.
Cash Flow: Financial Flexibility
Cash flow is yet another area where Salesforce shines. In Q1 2024, Salesforce's operating cash flow was $6.25 billion, up 39% Y/Y, and free cash flow was $6.08 billion, up 43% Y/Y. Palantir, although generating positive free cash flow of $149 million in adjusted free cash flow, lacks the financial flexibility that Salesforce enjoys. This flexibility allows Salesforce to reinvest and adapt without the same level of risk Palantir faces.
Free cash flow comparison
Valuation: The Price of Potential
Valuation offers an intriguing twist. A discounted cash flow (DCF) analysis suggests that Palantir's stock is currently overvalued, with a market price exceeding its DCF value. Salesforce, however, sports a more reasonable valuation, making it a potentially safer choice for those wary of overpaying. While Salesforce boasts established dominance, Palantir's high-growth potential in government contracting shouldn't be ignored, though its stock price has historically been more volatile.
PE ratio analysis
Shareholder Dilution: A Double-Edged Sword
Shareholder dilution is a key, often overlooked metric. Palantir has been issuing new shares to raise capital, diluting the ownership percentage of existing shareholders. While this infusion of capital is essential for growth, it diminishes the value of each share. In contrast, Salesforce, being more established, has less need to issue new shares, presenting a more stable investment in this regard.
The Verdict: Stability or Potential?
So, which stock should you consider? Based on revenue, profit margin, cash flow, valuation, and shareholder dilution, Salesforce emerges as the more attractive option. It boasts robust revenue, healthy profit margins, strong cash flow, a reasonable valuation, and minimal shareholder dilution. Palantir, while full of promise, remains in a growth phase and carries higher risks.
Total returns comparison
Investing is like choosing a long-term partner—you seek someone who not only sparks excitement but also offers stability and long-term potential. In this case, Salesforce appears to be the better match. However, always conduct your own research and consider your financial goals before making any investment decisions. Happy investing!
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Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.
