The big-data analytics market, which consists of companies that accumulate and analyze large amounts of data, has expanded rapidly in recent years as more organizations leverage those cloud-based tools to make data-driven decisions.
Two major players in that booming market are Palantir Technologies (PLTR 3.19%) and Salesforce (CRM 1.05%). Palantir, which is named after the all-seeing orbs from The Lord of the Rings, aggregates data from a wide range of disparate sources for government agencies through its Gotham platform, and for large companies through its Foundry platform.
Salesforce helps companies track their customers through the world's largest cloud-based customer relationship management (CRM) platform. It also provides additional cloud-based services for marketing, e-commerce, app development, data visualization, and enterprise communications purposes. So which of these stocks is a better all-around play on the growing big data market?
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Palantir took investors on a wild ride
Palantir is a much smaller company than Salesforce, but it attracted a lot of attention with its direct listing in September of 2020. Its stock started trading at $10, soared to an all-time high of $39 last January during the meme-stock rally, but now trades at about $9.
Palantir initially attracted a lot of attention with the robust growth of its government business and its expansion plans for the commercial market. It believed its powerful data-mining tools would make it the "default operating system for data across the U.S. government," and that it could leverage that battle-hardened reputation to optimize large businesses. It also claimed it would grow its revenue by more than 30% annually through 2025.
Palantir's revenue rose 47% in 2020, then grew 41% to $1.54 billion in 2021. However, it rose just 31% year over year in the first quarter of 2022, and it anticipates just 25% growth in the second quarter. That deceleration was mainly caused by a slowdown in its government business, which has grown at a slower clip than its enterprise business over the past three quarters.
Palantir also remains unprofitable, with net losses of $1.17 billion in 2020 (due to its direct-listing costs), $520 million in 2021, and $101 million in the first quarter of 2022. For the full year, analysts expect its revenue to rise 29% to $1.99 billion and for its net loss to narrow to $296 million.
Those numbers aren't terrible. But at its all-time high, Palantir was valued at $69.9 billion -- or 45 times the sales it would generate in 2021. Today, it trades at nine times this year's sales, but it still can't be considered cheap as rising interest rates squeeze unprofitable tech companies.
Salesforce is still generating steady growth
Salesforce's stock has declined more than 30% this year along with the broader tech sector, but its growth rates are still remarkably stable. Its revenue rose 24% in fiscal 2021, which ended last January, and grew another 25% to $26.5 billion in fiscal 2022. It expects to increase its annual revenue to more than $50 billion by fiscal 2026, which implies it can grow at a compound annual rate of at least 17% from fiscal 2022 to fiscal 2026.
Its revenue rose 24% year over year to $7.41 billion in the first quarter of fiscal 2023, and it expects 20% growth for the full year. All five of its core subscription-based businesses -- its sales, service, data, marketing and commerce, and platform divisions -- are all consistently growing by double digits. It continues to expand both organically and inorganically through big acquisitions like Mulesoft in 2018, Tableau in 2019, and Slack in 2021.
Unlike Palantir, Salesforce is firmly profitable. But its ongoing acquisitions and investments can cause its GAAP (generally accepted accounting principles) numbers to fluctuate wildly from year to year. Analysts expect its revenue to rise 20% to $31.8 billion this year, but for its net income to decline 69% to $449 million as it integrates Slack and its other recent acquisitions.
Based on those expectations, Salesforce trades at five times this year's sales, which is arguably a reasonable valuation for one of the largest cloud-based software companies in the world.
Salesforce is the safer investment
Palantir is only growing slightly faster than Salesforce despite being a much smaller company. It's also unprofitable and trading at a significantly higher price-to-sales ratio. Palantir might look interesting again if its stock drops to the mid single digits, but Salesforce should remain the much better big-data play for the foreseeable future.
