Earnings season is here in full force, but continued sell-offs in the stock market have some investors doubting their portfolios and scratching their heads. Big data analytics company Palantir Technologies (PLTR -6.17%) reported strong earnings this week, yet the stock is down a whopping 16% over the last five trading days.
In this article, we are going to dig into Palantir's fourth-quarter and full-year 2021 financial results, and benchmark some of the company's key performance indicators against its peers. Although not everything in Palantir's earnings release warranted celebration, the company is making great strides in several areas of the business. As the company hovers near all-time lows, investors with a long-term mindset may be interested in taking a look at Palantir before its next run-up.
Commercial sector growth is materializing
Wall Street skeptics have been critical of Palantir, labeling it as a company that relies too heavily on government contracts and has not established a strong foothold in the private sector compared to peers like Snowflake.
For the fiscal year 2021, Palantir generated $1.5 billion in total revenue. Nearly 60% of this was attributed to government contracts, while the remaining 40% came from the commercial sector. Although the majority of its revenue base comes from government business, Palantir has made some exciting progress in the private sector.
In early 2021 the company announced strategic partnerships with IBM and Amazon's cloud business, Amazon Web Services. Investors can see that these alliances are beginning to bear fruit.
The company's U.S. commercial customer count quadrupled from 17 at the end of 2020 to 80 by the end of 2021. When accounting for international customers, Palantir's private sector customer count increased over 200% from 49 total commercial customers in 2020 to 147 in 2021.
Perhaps even more encouraging than growing its commercial revenue base is Palantir's ability to retain its customers. For the first time since it became a public company, Palantir disclosed its net dollar retention rates (net dollar retention is a metric used to reflect how much revenue has grown or shrunk over a certain time period). For the commercial business, the company's net dollar retention was 113%. Since this is over 100%, it implies that the company is expanding this segment.
Cash is king
As noted above, Palantir disclosed net dollar retention to its investors for the first time. In addition to the commercial business' strong ratio, the company's government business reported net dollar retention of 146%. This is particularly encouraging for investors because it implies that the company's revenue growth is far exceeding any churn it may be experiencing. The importance of net retention can be seen more directly when analyzing Palantir's cash flow and balance sheet.
Palantir generated an operating cash flow of $333 million for the 2021 calendar year, compared to a negative $297 million during the year prior. This increase in cash flow positively impacts the company's balance sheet. As of Dec. 31, 2021, Palantir had $2.3 billion of cash while carrying no debt. During the same period in 2020, Palantir had $2 billion of cash and nearly $200 million of debt on the balance sheet.
The increase in cash has allowed Palantir a level of financial flexibility superior to its peers. For example, the company has made a number of interesting strategic investments in SPACs and is in the early stages of investing heavily in a larger sales force. Even though Palantir is not yet generating triple-digit top-line growth like other high-flying technology stocks, the company's healthy capitalization is a direct result of calculated investments over its near two-decade existence.
Keep an eye on valuation
Investors should keep a close eye on Palantir's valuation. Although the company grew its top line over 40% in 2021 and has committed to 30% growth or more over the next four years, its revenue stream is fairly difficult to predict. Wall Street's concerns over Palantir's reliance on large deals with a finite number of customers, with particular dependence on government contracts, can make its revenue flow somewhat unpredictable.
Following the company's Q4 results, the stock price hit a fresh 52-week low. It's clear that Palantir is making a big push into the commercial sector to fuel more growth, which will come at a cost in the short term. The positive news is that Palantir has plenty of cash to deploy for these efforts. Moreover, the company's sticky revenue base could be a leading indicator that customers are satisfied with the product and will purchase additional products and services upon renewal.
Management has made it clear that it has a very specific and well-thought-out roadmap for growth. As the company hires more salespeople and continues investing in the commercial sector, Palantir's use cases should grow across different industries worldwide.
For these reasons, investors should exercise some patience with Palantir. 2022 will be an important investment year for Palantir, and investors with a long-term time horizon may have a chance to invest in a company well-positioned for future growth at a low point.