Palantir: Emerging As a Platform

Q3 2023 ER Update with 21% Discount on Paid Subscription

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Onto the update now!

Edited by Brian Birnbaum and an update of my original Palantir deep dive and my Q2 update.

1.0 AIP is Speeding Up Deployment

This quarter AIP (Palantir´s Artificial Intelligence Platform, that enables users to naturally interact with the company's products via large language models) has led to a leap in distribution efficiency, which promises an inflection point for the commercial business and for the company overall.

Though known as a federal contractor, especially for military purposes, Palantir’s commercial business will be responsible for turning it into an AI juggernaut. Improvements in commercial distribution represent the backbone of my Palantir long thesis.

In my Q2 update I explain how AIP is to Palantir what the mouse was to PC companies a few decades ago. AIP enables customers to interact with the product ontology far more naturally, which ultimately lends more efficiency to deployment.

In Q3 AIP, led to a distribution breakthrough, meaningfully accelerating Palantir´s commercial sales pipeline. Palantir has been conducting AIP boot camps with customers who leave with “a series of use cases that are production ready or near production ready that [they] can go forward with.”

“This difference has been so profound that we shifted the entire commercial organization to focus on one to five-day long customer boot camps, where organizations exit with a scalable use case on their actual data that they built for themselves. Customers leave so excited with this definite optimistic view of what can be accomplished and how they'll drive transformation in their organizations.”

-Shyam Sankar, Palantir CTO during the Q3 2023 call.

Although there are many moving parts, the Palantir´s evolution is best described by the growing ease with which it deploys its offerings. As I explain in my deep dive, by productizing its offerings, Palantir can eventually attain a near frictionless level of deployment, thus becoming a platform.

According to management, AIP is now being used by nearly 300 organizations, implying nearly 300% growth QoQ. This pace of evolution is more customary of a platform than of a service company and thus represents a milestone. The advancements in healthcare,  analyzed later in Section 2.0, point to the same reality.

As Palantir continues to move in this direction, its operating leverage will rise, producing more attractive unit economics and financials across the board. If the company is protective of shareholders, over the long run, productization of Foundry should produce much higher levels of free cash flow per share.

Revenue growth re-accelerated on the back of our U.S. commercial business, driven by our intense focus on AIP, while margins continue to expand, demonstrating the transforming unit economics of our business.

-Dave Glazer, Palantir CFO during the Q3 2023 conference call.

This quarter, commercial revenue was $251M, coming in well above the $234m consensus. According to management growth is due in part to AIP´s “transformation of the way [Palantir] partners with and delivers value” to customers. In hindsight, I believe we will look at this quarter as an inflection point.

Additionally, this quarter the commercial business has reached a $1B annualized run rate milestone.

$PLTR Revenue by Segment, $.

US commercial business revenue is up 33% year-over-year. Excluding strategic commercial contracts, it grew 52% year-over-year and 19% sequentially. U.S. commercial customer count rose 12% quarter-over-quarter and is now ten-fold what it was just three years ago, coming in at 181 customers.

Note: Palantir is unwinding its strategic commercial contracts (contracts based on the controversial SPAC deals). The revenue from these contracts is smaller every quarter and that is why the company issues growth metrics excluding them.

Revenue from strategic commercial contracts was $15 million or 2.6% of quarterly revenue, down from $19 million in the prior quarter.

We anticipate fourth quarter revenue from these customers to continue to decline to between $13 million to $15 million, representing 2.3% of expected fourth quarter revenue.

-Dave Glazer, Palantir CFO during the Q3 2023 conference call.

Deal count for Palantir´s U.S. commercial business is 2.4x what it was in Q3 of last year. U.S. commercial TCV (total contract value: the lifetime value of a contract) closed at $252 million, up 55% year-over-year on a dollar-weighted duration basis. In turn, three-fourths of the QoQ growth stems from customers that started with Palantir in 2023, reflecting a good ability to land and expand for Palantir. 

Note: since Palantir is my most widely read deep dive, I thought that it would only be appropriate to offer you a 21% discount on my paid subscription, so that more of you can enjoy my Q3 update.

Click on the button below to claim your discount today. This offer will only be valid until November the 13th 2023.