Resilient Growth Expected Ahead for Palantir

Narrow-moat Palantir Technologies' PLTR 40% year-over-year revenue growth in the fourth quarter came in well above our prior expectations and management's guidance. The company is also benefiting from the transition to a software-based firm and its efforts to more efficiently deliver and scale its products. Palantir is landing larger deals from more customers while expanding the margin profile of its deployments, and we believe the small customer base is indicative of a sizable opportunity as Palantir grows its sales force and channel partnerships. After increasing our revenue growth profile while still expecting strong operating margin expansion, we are raising our fair value estimate to $24 per share from $18. Shares fell over 10% in intraday trading, but we still recommend a wider margin of safety before investing In the quarter, government sales increased by 85% and commercial revenue grew by 4% year over year. While commercial growth was slower than we anticipated, we expect Palantir's 2021 focus of expanding its direct sales force and channel partnerships to accelerate this segment. Palantir is showing strong momentum with growing sales and margins with its existing customer base, diversification among its revenue streams, and ability to land new clients. Average revenue per customer increased by 41% year over year to $7.9 million. Annual revenue from top 20 customers increased by 34% year over year to $663 million, while the customer concentration from those top 20 customers declined to 61% from 67% the year before. Palantir closed more than 21 deals in the quarter worth at least $5 million, with 10 of those worth at least $10 million. Adjusted gross and operating margins of 84% (81% last quarter) and 32% (25% previous quarter), respectively, were ahead of our prior expectations as revenue outpaced expenses, Palantir lowered its cloud hosting costs, and go to market efficiency gains are decreasing upfront software deployment costs.

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