The end of Palantir? (Why $PLTR is down and keeps dropping?)

Summary

The video discusses Palante's exceptional quarterly performance, where it exceeded expectations on all metrics, including revenue and earnings per share, and provided optimistic guidance for the rest of 2024. Despite this, the stock price dropped significantly post-earnings release, which the speaker attributes to high market expectations and subsequent disappointment. The speaker remains bullish on Palante, comparing its potential to that of Salesforce and Microsoft, and sees the current dip as a buying opportunity. Key highlights include a net dollar retention rate of 108%, a 9% year-over-year growth in spending from the top 20 customers, a 450% increase in net income, and a positive trend in assets and liabilities. The company's revenue per employee stands at an impressive $700,000, and despite a high price-to-earnings ratio, Palante is seen as a company that is growing into its valuation with a strong potential for future growth.

Takeaways

• 📈 Palante had one of its best quarters ever, exceeding expectations on revenue and earnings per share, and providing strong guidance for the rest of 2024.
• 📉 Despite the strong quarter, the stock price dropped significantly after earnings were released, likely due to high market expectations and subsequent sell-off.
• 🤔 The drop may not matter for long-term investors, as the fundamentals of the company remain strong and the short-term volatility is considered irrelevant in the long run.
• 🎯 Crowd psychology played a role in the stock's performance, with expectations being so high that the market overreacted to the earnings release.
• 🚀 The company's net dollar retention improved to 110%, indicating that Palante is retaining and growing its client base effectively.
• 💹 Palante's top 20 customers increased their spend by 9% year-over-year, showing loyalty and continued investment in the company's services.
• 📊 Net income saw a massive increase of 450%, reflecting improved efficiency, scalability, and profitability for Palante.
• 💼 The balance sheet remains strong with $4 billion in cash and no debt, and the company continues to improve its asset and liability positions.
• 👥 Revenue per employee is exceptionally high at $700,000, placing Palante among the top tier of companies in terms of revenue generation per employee.
• 🤝 Palante's price-to-earnings (PE) ratio has improved significantly, from 200 a year ago to 58, indicating the company is growing into its valuation.
• 🌱 The company is still in an early stage of commercial growth, with substantial growth and success potential baked into the current price.

Q & A

Why did Palante's stock drop despite having one of its best quarters?

The stock dropped due to high market expectations. The stock had increased by 8% in a single day and 20% over two weeks leading up to the earnings report. When the earnings were released and did not significantly exceed expectations, the stock began to correct, leading to a sell-off.

What is the significance of Palante's net dollar retention rate of 108%?

A net dollar retention rate of 108% means that Palante's clients, on average, have increased their spending by 8% more than what they paid the previous year, indicating strong customer retention and growth in revenue from existing customers.

How does Palante's year-over-year growth of its top 20 customers impact the company?

The 9% year-over-year growth of Palante's top 20 customers, who generate almost half of the company's business, indicates that these key clients are increasing their spending, reducing the risk of client concentration and showing a commitment to the company's services.

What is the implication of Palante's net income increase of 450%?

The 450% increase in net income from $19.5 million to $106 million signifies a substantial improvement in operational efficiency and profitability, suggesting that Palante is scaling effectively and managing its costs well.

How does Palante's balance sheet compare to its previous state?

Palante's balance sheet has improved with assets up 7% year-over-year and liabilities down 7%, indicating financial health and a strong position with $4 billion in cash and no debt.

What does Palante's revenue per employee indicate about the company?

Generating about $700,000 revenue per employee, Palante is highly efficient and competitive in terms of productivity per worker, placing it among the top-tier companies globally.

Why is Palante's price-to-earnings (PE) ratio decreasing?

Palante's PE ratio is decreasing because the company has recently turned profitable, and as it continues to grow into its valuation, the PE ratio is becoming more reasonable, reflecting the company's improved financial performance.

What does the lag in revenue growth imply for Palante's future?

The lag in revenue growth suggests that there is a significant potential for future revenue increases as the company's customer on-boarding cycle matures, and the growth in the pipeline translates into actual revenue.

How does Palante's US commercial growth compare to its overall growth?

Palante's US commercial growth is robust, with a 40% year-over-year increase and a 70% increase in US commercial customer growth, indicating a strong market position and potential for further expansion.

What is the potential impact of Palante's remaining deal value and total contract value on its revenues?

With a 74% increase in US commercial remaining deal value and a 131% increase in total contract value, Palante is well-positioned for substantial revenue growth as these deals materialize.

Why might a long-term investor not be concerned about Palante's stock drop after earnings?

A long-term investor might not be concerned because such short-term market fluctuations are often irrelevant to the company's underlying value and long-term potential, especially if the company continues to execute well and deliver on its growth strategy.

Outlines

00:00

📉 Stock Performance Post Earnings: Understanding the Unexpected Drop

The first paragraph discusses the perplexing situation where despite Palante (presumably a company's name) having one of its best quarters ever, with better-than-expected revenue and earnings per share, and positive guidance for the rest of 2024, the stock price fell significantly. The speaker aims to explain the reasons behind this occurrence and argues that this is actually a positive sign for long-term investors. The summary touches on crowd psychology, comparing the situation to Tesla's past stock performance, and suggests that high pre-earnings expectations led to the stock's decline. It emphasizes the irrelevance of short-term stock movements to long-term investors and outlines the speaker's bullish stance on Palante, with a comparison to Salesforce and Microsoft for potential future valuation.

05:01

📈 Financial Metrics and Company Performance: A Deep Dive

The second paragraph provides an in-depth analysis of Palante's financial performance, highlighting improvements in net dollar retention, top customer growth, net income, and balance sheet health. It points out that net dollar retention improved to 110% from 108%, indicating that Palante is retaining and growing its client base effectively. The growth of the top 20 customers by 9% year-over-year is emphasized, signifying a decrease in concentration risk and a stable revenue stream. The net income increase from $19.5 million to $106 million is highlighted as a significant achievement, reflecting improved efficiency and scalability. The balance sheet's strength, with $4 billion in cash and no debt, is noted, along with the increase in assets and decrease in liabilities. The revenue per employee metric is compared to top-tier companies like Microsoft and Google, demonstrating Palante's strong performance. The paragraph concludes with a discussion on Palante's price-to-earnings (PE) ratio, showing a decrease from 200 to 58, indicating the company is growing into its valuation.

10:02

🚀 Future Growth Potential and Customer Acquisition: A Promising Outlook

The third paragraph focuses on Palante's growth potential and customer acquisition strategies. It outlines the significant growth in the US commercial sector, with a 40% year-over-year increase and a 70% year-over-year growth in US commercial customers. The speaker anticipates that the lag in customer onboarding will eventually close, leading to increased revenue growth in the high 20s to low 30s. The paragraph emphasizes Palante's early stage in the commercial market, comparing it to a young company despite its size. The speaker expresses confidence in Palante's execution over the past five quarters and highlights the trust they have gained. The potential for substantial growth and success is underscored, with the speaker reiterating their optimistic view of Palante's future.

Keywords

💡Revenue

Revenue refers to the total income generated by a company from its business activities. In the context of the video, it is mentioned that Palante's revenue was better than expected, which is a positive sign for the company's financial health and growth.

💡Earnings per share (EPS)

Earnings per share (EPS) is a financial metric that represents a company's profit allocated to each outstanding share of common stock. The video highlights that Palante's EPS was higher than expected, indicating strong performance and potentially increasing the value of the company's stock.

💡Guidance

Guidance in a financial context refers to a company's official forecast or projection of its future performance. The video mentions that Palante provided great guidance for the rest of 2024, which is important for investors as it sets expectations for the company's future growth.

💡Stock price fluctuation

Stock price fluctuation refers to the changes in the market value of a company's stock. Despite Palante's strong financial performance, the video discusses the heavy drop in its stock price post-earnings release, which can be attributed to market expectations and investor sentiment.

💡Crowd psychology

Crowd psychology is the study of how people behave in groups, especially in financial markets. The video uses the example of Tesla to illustrate how market expectations and crowd psychology can lead to significant stock price movements, even when a company performs well.

💡Net dollar retention

Net dollar retention is a metric used in Software as a Service (SaaS) businesses to measure the growth of revenue from existing customers. Palante's net dollar retention of 108% indicates that the company is successfully retaining and growing revenue from its customer base.

💡Top 20 customers

Refers to the highest revenue-generating clients of Palante. The video discusses the importance of these customers to the company's revenue and the risk of client concentration. It also highlights the growth in spending from these top customers, which is a positive sign for the company's financial stability.

💡Net income

Net income is the profit a company makes after deducting all its expenses from its total revenue. The video emphasizes Palante's significant increase in net income, which is a sign of improved efficiency, scalability, and profitability for the company.

💡Price-to-Earnings Ratio (PE)

The Price-to-Earnings Ratio (PE) is a valuation ratio calculated by dividing the market price of a share by its earnings per share. The video discusses Palante's PE ratio, noting that it has decreased significantly, which could indicate that the company's stock is becoming more attractive to investors.

💡Revenue growth

Revenue growth refers to the increase in a company's income over a specific period. The video mentions Palante's revenue growth of 21%, which is a key indicator of the company's expansion and financial success.

💡Commercial growth

Commercial growth pertains to the expansion of a company's business activities in the commercial sector. The video highlights Palante's commercial growth, with significant increases in both customer base and deal value, suggesting a strong market position and potential for future revenue growth.

Highlights

Paler had one of its best quarters ever, beating expectations on every possible metric

Despite strong earnings, the stock price dropped heavily after the earnings report was released

The high expectations set for Paler made it difficult for the stock to meet them, leading to the sell-off

The stock price increase of 20% in the two weeks leading up to earnings made it hard for Paler to meet the market's high expectations

Long-term investors should not be concerned about the short-term stock price drop

The author is more bullish on Paler than ever before after the earnings call

Paler's net dollar retention improved to 110%, a positive sign for the SaaS business

Top 20 customers increased spending by 9% year-over-year, reducing concentration risk

Net income increased a staggering 450%, demonstrating improved efficiency, scalability, and profitability

Revenue growth of 21%, with cost of goods and operating expenses growing at slower rates of 8% and 6% respectively

Balance sheet remains strong with $4 billion in cash and no debt, and continued improvement in asset and liability growth

Revenue per employee of $700,000, ranking Paler among the top tier companies in the world

Price-to-earnings ratio has improved significantly from 200 to 58, as Paler grows into its valuation

U.S. commercial growth of 40% year-over-year and 14% quarter-over-quarter, with a large pipeline of potential revenue growth

U.S. commercial remaining deal value up 74%, and total contract value up 131%, indicating strong future revenue potential

Paler is still an early-stage company with a lot of growth and success baked into its current valuation

The company has executed well and delivered results for five consecutive quarters, earning the author's trust

Transcripts

well paler just had one of its best

quarters of all time it beat on every

possible metric its Revenue was better

than expected earnings per share was

higher than expected and it gave great

guidance for the rest of

2024 and yet the stock was down heavy

right after earnings came out and of

course the big question here is what the

hell is going on why did paler had such

a great quarter and it still dropped

like a stone what just happened here now

in this video I'll do a few things

number one I'll explain to you what

exactly happened what led to this but

more importantly I'm going to show you

why this is probably one of the best

quarters paler has ever put out and why

this earnings call made me more bullish

about paler than I have ever been and

trust me I have been quite bullish

before this earnings call so this is

very impressive stuff so let's start

first of all with what happened here now

you have to think about crowd psychology

think back to what happened with Tesla

everybody were convinced that Tesla is

going to have absolutely horrendous

earnings and the stock sold off like

crazy leading up to the earnings

everybody was saying hey I'm going to

wait for the stock to crash once it

crashes I'll buy back right after

earnings at least the Bulls what ended

up happening is this rubber band effect

where everybody were convinced something

is so horrible so horrific the minute

the earnings came out from Tesla and

they were not the worst the world has

ever seen it wasn't the end of Tesla

that spring got released and Tesla flew

up and then corrected back but generally

flew up like crazy now that happened

because the expectations were so

horrible that no matter what Tesla put

out basically it meant that the stock

would go up now very similar to this

palente did the same thing from the

other side and everybody were so

convinced that paler will have such

great earnings it will blow everybody

out of the water which they did but

because the level of expectation for the

stock for the earnings was so high palen

literally needed to come out and beat

like nobody has ever beat before to meet

that expectation level the stock

increased by 8% in a single day leading

up to the earnings it did 20% over the

past two weeks leading up to the

earnings so that lead up that buildup

that 20% increase we've seen in paler

stock just before earnings that was the

setup that was very hard for paler to

meet the minute the earnings came out

and it was just a normal beat it was

well below the threshold of what the

market has already priced in and then it

started correcting and then the

Avalanche started because once it start

selling off there's a lot of algorithmic

trading especially in after hours and

then you saw the Avalanche come down

that's the gist of it that's what

happened with paler does it matter to me

as a long-term investor should it matter

to you as a long-term investor not at

all I mean it's pretty much irrelevant

it's a fart in the wind who cares but it

does matter to a lot of people who are

unsure about this company who are unsure

about its potential and that's why I'm

here to explain to you and I've said

this during the earnings call we had a

beautiful live stream almost three hours

phenomenal guest and I want to thank

everybody who came on the live stream

and one of the things I've said is that

my bottom for this company my floor for

the next five years is Salesforce so I

see this at the very minimum about $250

billion market cap which is basically 5x

from where they are right now at the top

I see this is a Microsoft equivalent

which is easily 20x from this point on

so you see that I'm not bothered by this

and in fact I'm quite interested in this

stock price if it keeps dropping I'm

just going to be more excited I'm going

to be dcing even harder which is

something that I've never used before

hard dcing that might need to go on a

t-shirt but you get what I'm saying here

now as far as the quarter itself I mean

when we look at the numbers I can't help

but just being absolutely impressed by

what they've done especially in this

climate in this economy in this

environment with this geopolitics look

let's look over the numbers here and

I'll start from the bottom and work my

way to the top so one of the things that

I was so critical of paler over the past

few quarters is the deine deine in the

net dollar retention in a SAS business

in a software as a software business

it's very important to have recurring

Revenue right not only recurring Revenue

but increasing recurring revenue and the

way you measure this is with net dollar

retention that's a very tricky metric

but it's super important for paler

essentially paler came in into this call

with a net dollar retention of 108%

which means that they have built all

their clients on average 100% from what

they've paid last year and 8% above that

that's not bad but it's definitely not

as good as some of the other SAS

Superstars out there like snowflake now

this 110% we got is an improvement

especially when the 108% was already an

improvement from the previous quarter so

pante here is now improving the net

dollar retention two quarters in a row

now I definitely want to see this going

into 20% which is where I think paler

should be and that trajectory really

really makes me confident what they're

doing the other thing I like here is the

fact that we have 9% growth

year-over-year for the top 20 customers

of pener now 9% growth year-over-year

that doesn't sound exciting who cares

well hold on a second you'll care in a

second you see the top 20 clients of

paler they generate a lot of criticism

for the company because of you know

concentration right if the top 20

clients basically are half your business

you have a risk right it's a

concentration risk client concentration

risk but the flip side of this is when

those top 20 customers that generate

almost half your business have increased

their spend by 9% per client year over-

year that means that everybody's paying

on average $55 million per year from

those 20 customers which means that the

Thor brats the clients that they care

about they're increasing their spending

every single year and if you go back

through the earnings that 9% number is

always there their top 20 customers

consistently pay more every single year

and they don't leave now the other thing

that blew me away was the net income net

income for penter get this is up

450% from $19.5 million to $16 million

that is absolutely insane from 9 and a

half to 106 that is a wild increase in

efficiency in scalability in

profitability on the one hand we have

Revenue growth of 21% on the other hand

our cogs cost of goods is only growing

by 8% and the entire operating expenses

are only growing at 6% so if you can

give me a company that's growing

revenues by 21% but only growing

operating expenses by 6% that company is

growing faster and faster it's faster

it's expanding it's not only getting

better it's getting better twice it's a

double dip now even if you look at the

balance sheet which we all know is

beautiful for paler they have four

billion in cash no debt but even there

they find places to get better assets up

7% year-over year liabilities down 7%

again the company that's increasing its

assets decreasing liabilities at the

same time usually these things don't

happen you usually don't see this where

$4 billion do no debt more assets and

liabilities four times more three times

more and the Gap is expanding it's

absolutely insane now even if you look

at data like Revenue per employee which

a lot of people are really not that

excited about but I think it's a really

good gauge of how good paler is paler is

currently generating about

700,000 Revenue per employee that is

insane it's not as good as Microsoft or

Google or meta which are probably

towards the you know a million give or

take but it's in the upper echelon of

companies they're definitely in the

league of the top tier companies in the

world if you compare that to snowflake

for example n generates about 500,000

per employee with 113 priced earnings on

a forward basis versus peners 58 which

we'll talk about in a second and a

negative net income versus palente

positive net income and with the same

amount of Revenue of $2.8 billion per

year so not to hate on snowflake but I'm

saying it's a good Benchmark to show you

how good paler is at profitability

scalability now if youve already

mentioned this I'm going to kind of move

on from this point and I'm going to talk

about PE everybody criticizes paler for

having a very high price to earnings and

I've been saying this for the past year

I've been saying look guys the PE that

you're seeing on Palante right now

that's the first PE the second PE they

just turned the profit they just turned

the corner so they're essentially just

basically broke even so it's not really

the good comparable right now this is

the evidence I've been talking to about

look the PE was 200 just a year ago it's

currently 4 PE of 58 not saying that 58

is low but 58 versus 200 in a year just

show you that closing their Gap penter

is slowly growing into their valuation

the same way Tesla did the same way all

great companies do you know that's

saying time is the best friend of a

great business and that's specifically

true for the stock market and for

multiples that 58 for PE p doesn't have

an exuberant crazy PE anymore so another

fud gone out the window right now we're

talking about a company that generates

21% Revenue growth but that Revenue

growth is just the tip of the iceberg

you can see the potential of the revenue

growth the one that's in the pipeline is

a lot bigger and I'll show you look we

have about 40% of us commercial growth

year-over-year

14% quarter over quarter we have 70% us

commercial customer growth year-over

year those numbers are baked in in into

the cycle of paler but they've not yet

translated to revenue growth there's a

lag there's a life cycle of a customer

on boarding and it's not the only place

where you can see this look at the US

commercial remaining deal value it's up

74% look at the total contract value

it's up

131% this lag will eventually close and

will increase the revenues out of the 21

region into the 30s that's inevitable

because paler at this price at this

stage it's still a very early stage

company people tend to think about paler

this massive 20year Behemoth you have to

remember that the commercial stuff of

penter just started

2017 when you think of penter think

about commercial versus government

completely different businesses this is

a young company this is you getting in

on the ground level it's not cheap

there's a lot of growth and success

baked in into this price but so far over

the past five quarters they've done

nothing but execute and deler

and they've definitely gotten my trust