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Palantir Is an AI-based Success Story

This security operations software giant has seen a lot of growth since its inception in 2003. In the past year alone the stock is up by 76% as investors find the company’s success in navigating from government to commercial customers gains traction.

The company got its start by assisting government agencies with counterterrorism operations but it now offers diversified software solutions that are used in approximately 80 industries worldwide.

In the first quarter of this year, Palantir’s customer count increased 42% from the prior year’s period and 11% sequentially to reach 554 on a trailing 12-month basis. 

The company’s successes have been lauded, having closed 87 deals valued at $1 million or more. Among those deals, 27 were worth at least $5 million, and 15 were worth at least $10 million.

As a result of its commercial push, Palantir’s commercial customer count went from 280 as of the trailing 12-months  that ended March 2023 to 427 as of the TTM ending March 2024, a 53% increase. In the U.S., the company’s customer count came in at 262, representing a growth rate of 69%.

Palantir’s revenue has benefitted significantly from this growth. The quarterly top line grew by 21% from the prior year’s period to $634 million. Q1 was also the sixth consecutive quarter in which the company posted GAAP-based profitability.

Palantir’s Bootcamps Are Driving Demand

Palantir has aggressively pushed its Artificial Intelligence Platform. Launched in mid-2023, it has seen a lot of engagement from users looking to speed up high-value AI use cases.

To meet the intense demand, Palantir introduced AIP Bootcamps, which are hands-on-keyboard sessions where participants can explore a use case in just one to five days. As of the last quarter, the company reported completing bootcamps with more than 915 organizations.

This has led to a considerable surge in Palantir’s commercial revenue, which mushroomed by 27% year-over-year to $299 million. In the U.S., this surge was felt more heavily when commercial revenue increased by 40% from the prior year’s period to $150 million. This growth has outpaced its government segment’s growth, demonstrating the high demand for of its AI offering in the commercial sector.

The company also raised its FY2024 revenue outlook from between $2.652 and $2.668 billion to $2.677 and $2.689 billion. For the U.S. commercial revenue sector, top line growth expectations were raised from 40% to at least 45%.

This forecasts reveal that Palantir is growing rapidly and that is translating to a strong balance sheet too. It ended the first quarter with $3.9 billion in cash, cash equivalents, and U.S. treasury securities. Better still, the company has no debt. 

With all that said, Palantir’s valuation is stretched and it’s trading at a hefty 74.4x forward non-GAAP earnings. Wall Street analysts seem to think the price has got ahead of valuation in the short-term too and placed a 13.4% downside price target on the stock.

Over the long-term, though, expect AI traction in the commercial sector to be a long-term driver for Palantir.

Roku Is a Streaming Leader

A focus on sports content has led Roku to become a household streaming name in spite of stiff competition.

Advertisers have flocked to the platform because, in the U.S., it is the #1 TV platform by hours streamed. That success hasn’t helped the stock a whole lot with the share price well down from its 2021 highs, and falling by 44.7% over the past two years alone.

The company’s advertising focus has expanded thanks to partnerships forged with The Trade Desk and iSpot. The Summer Olympics in Paris this year offer another growth lever given that the platform will feature its own NBC Olympics zone. 

Meanwhile, The Roku Channel, which became the platform’s #3 app in the first quarter, has also attracted considerable interest.

So, how is this all translating to the profit and loss statement?

Roku Needs To Deliver Bottom Line Growth 

As of the first quarter of this year, Roku reported having 81.6 million streaming households, increasing by 14% year-over-year, while streaming hours mushroomed higher by 23% from the prior year’s period to 30.8 billion.

Due to heightened engagement, total net revenue increased by 19% from the year-ago value to $881.50 million.

Roku has more top streaming apps on its platform than any other streaming platform in the U.S. Its platform accounts for 86% of its top line as of the last reported quarter. This segment also has seen strong growth of 19% year-over-year, rivaling the device segment.

Over the past five quarters, the company’s gross profit margin has been in the 40-46% range, which is by no means poor but leaves room for improvement in order to turn the bottom line positive.

On the bright side, Q1 was the third consecutive quarter of positive adjusted EBITDA and free cash flow. In fact, its trailing-12-month free cash flow more than doubled from the prior quarter. Roku is attempting to boost margins, primarily by lowering operating expenses.

For the current quarter, Roku expects total net revenue of $935 million, a $410 million gross profit, and adjusted EBITDA of $30 million. 

On a positive note, management remains confident that it can drive growth in 2025 and beyond. And ROKU’s valuation seems quite reasonable now.

Roku’s price sits at just 2.01x its forward sales. Although this is higher compared to the industry average, it is significantly lower than its five-year average and reflects the premium the company commands as the sector leader.

The consensus among Wall Street analysts now is that the company has upside to $73.18 per share, suggesting 16% upside opportunity.

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