Palantir (PLTR 3.73%) and Alteryx (AYX) both crunch massive amounts of information to help organizations make better data-driven decisions. Palantir's Gotham platform serves the U.S. military and other government agencies, while its Foundry platform provides commercial versions of those tools. Alteryx collects data from a company's various computing platforms, then cleans up and organizes that information so it can be easily fed to third-party data visualization services.
Palantir went public via a direct listing in September 2020, and its stock hit an all-time high of $39 on Jan. 27, 2021. Alteryx went public through a traditional IPO in March 2017, and its stock closed at its all-time high of $181.98 on July 9, 2020. However, Palantir and Alteryx now trade about 60% and 84%, respectively, below those record highs.
Image source: Getty Images.
Both stocks lost their luster as revenue growth cooled off and rising interest rates popped their bubbly valuations. But is either stock still a worthwhile investment for long-term investors who can tune out the near-term noise?
Palantir is prioritizing profits over revenue growth
Palantir initially claimed it could grow its annual revenue by at least 30% annually through 2025. It expected to achieve that goal through the steady growth of its government business and the expansion of its commercial business.
But after rising 47% in 2020 and 41% in 2021, Palantir's revenue only rose 24% in 2022. It expects that slowdown to deepen with just 16% growth in 2023.
That slowdown was caused by the cooling growth of its commercial business, which struggled as large enterprise customers reined in their software spending. It was also exacerbated by the uneven timing of new U.S. government contracts in the first half of the year. Analysts expect its revenue to rise 19% in 2024 as some of those headwinds dissipate.
As Palantir's revenue growth cools off, it's stabilizing its profits with aggressive cost-cutting measures. It's achieved profitability on a generally accepted accounting principles (GAAP) basis over the past three quarters, and it plans to stay profitable throughout the rest of the year. Analysts expect its non-GAAP earnings per share to jump 267% this year and grow 18% in 2024.
Palantir's stock isn't cheap at 67 times forward earnings, but two catalysts could justify that premium. First, its commercial business could recover as the macro environment improves. Second, its new Palantir AI Platform, which helps companies build new AI apps and crunch data more efficiently, could help it capitalize on the secular expansion of the artificial intelligence (AI) market.
Alteryx still can't generate profits as its growth cools off
Alteryx's annual revenue grew at a compound annual growth rate of 45% from 2017 to 2022. However, it only expects its revenue to rise 9%-10% in 2023 as the macro headwinds drastically reduce the market's demand for its analytics services. Analysts expect its revenue to rise 10% this year and grow 13% in 2024.
Alteryx's year-over-year growth in total customers decelerated over the past year, and it stopped disclosing that metric altogether in the second quarter of 2023. On the bright side, its dollar-based net expansion rate -- which gauges its year-over-year revenue growth per existing customer -- has held steady at around 120%.
Like Palantir, Alteryx is reining in its spending as its revenue growth cools off. Last quarter, it claimed that it could generate an "annualized cost savings of over $30 million" by cutting more jobs, eliminating most of its open positions, and reducing its other expenses. But for now, Alteryx is still unprofitable by both GAAP and non-GAAP measures.
Analysts expect Alteryx to generate a non-GAAP net profit of $0.66 per share this year as it implements its cost-cutting measures, and for that figure to rise another 70% in 2024. That outlook is promising, but investors shouldn't ignore Alteryx's shockingly high debt-to-equity ratio of 32.2 -- which is much higher than Palantir's ratio of 0.3. As for its valuations, Alteryx also looks significantly pricier than Palantir at 132 times forward earnings.
The obvious winner: Palantir
Palantir's stock could remain under pressure until its revenue growth accelerates again, but it's clearly a better buy than Alteryx for four simple reasons: It's growing faster, it's more profitable, its stock is cheaper, and its balance sheet is healthier.
