Enterprises rely on data to deliver value. According to research from IDC, the problem is that upwards of 80% of an organization's data is unstructured. Customer records, important documents, audio files, emails, and more are housed in disparate systems, rendering traditional automation, business intelligence, and analytics solutions less useful. As a result, most of these organizations spend years with high-cost consultants attempting to build an in-house solution. More often than not, these efforts do not lead to much progress.
After spending nearly two decades as a private company and raising billions of dollars in venture capital, Palantir Technologies (NYSE:PLTR) is showcasing that the capabilities of its premier software platform, Foundry, were well worth the wait. Moreover, Palantir has invested in a number of smaller, yet potentially disruptive technology companies to assist in its many use cases and addressable markets.
Financial performance
Palantir describes Foundry as the connective tissue that connects analytics and operational systems, allowing customers to model and execute complex cross-functional transactions. This method is beginning to pay dividends for Palantir, as the company generated $392 million in revenue during Q3, representing 36% year-over-year growth. Moreover, the company is increasing average revenue per customer and expanding its margins, leading to increased cash flow. In Q3 2021 Palantir reported 57% contribution margin compared to 56% in Q3 2020. Additionally, Palantir's year-to-date operating cash flow is $240.4 million, compared to negative $278.3 million for the first nine months of 2020.
Palantir concluded its Q3 earnings call with guidance for Q4 2021 revenue of $418 million and full-year 2021 revenue growth of 40%. However, not all investors were pleased with these results, as stock-based compensation remains a significant component of the management team's pay. The company has outlined a clear vision to grow revenue at 30% or more for the next four years. So despite its stock-based compensation awards, I am enthusiastic about Palantir's growth prospects, especially in the commercial sector, and about its growing number of use cases.
All roads lead to cryptocurrency
Palantir has found interesting ways to deploy its capital since its public offering. The company has invested in several high-growth companies in the transportation space, including connected vehicle data analytics company Wejo (NASDAQ:WEJO) and micromobility company Bird Global (NYSE:BRDS). The company also formed an alliance with cellular medicine company Celularity (NASDAQ:CELU), which is leveraging Palantir's software in its cellular data set to accelerate research and development initiatives.
These partnerships and strategic investments are assisting Palantir as the company discovers more use cases and serviceable markets, especially for non-governmental entities.
During the earnings call, management announced that they had discovered a unique fit with crypto companies that need industrialized compliance solutions. Palantir is leveraging its experience with anti-money laundering and helping governments identify compliance issues with some of the largest banks in the world.
The rising number of use cases and applications for the Foundry product could bode well for Palantir as the company begins to scale its commercial sector practice. Financial institutions such as investment banks (as well as brokers and trading platforms such as Coinbase and Robinhood) will all need to continue building out proper compliance procedures as crypto becomes more regulated.
Palantir reported meaningful growth on the commercial side of its business in the form of 46% quarter-over-quarter growth in commercial customer count and 135% since December 2020. As an investor, I am impressed by the malleability of Palantir's product and its market-ready applications. Given the rise in enthusiasm around the crypto-economy at large, the implications of Foundry for crypto should not be underestimated.
Now what?
Palantir has faced scrutiny for its lucrative stock-based compensation packages as well as its reliance on large government contracts. However, the company showcased new uses in financial services, specifically crypto, and highlighted how its software is assisting the automotive industry Although management reiterated its commitment to 30% year-over-year growth for the next four years, these case studies make me feel that it is possible that this is a bit conservative given the company's current trajectory of 40% revenue growth this year, and the fact that many of these strategic investments and partnerships are still in early stages.
When it comes to big data analytics, Palantir is the company that excites me the most. I think that the company has invested wisely over the course of two decades, and the growth that we are seeing is only the beginning.