This article was originally published on Forbes on Feb 15, 2024,04:51 pm ESTForbes Forbes on Feb 15, 2024,04:51 pm EST
Palantir’s Q4 earnings confirmed an acceleration in its US commercial business as it closed out its first GAAP profitable year. Shares are reflecting the optimism surrounding Palantir’s commercial segment and bottom line expansion, with shares up more than 47% YTD and nearly 280% since the start of 2023.
We noted in our stock newsletter in December that Palantir was “exhibiting multiple signs of acceleration heading into 2024 with an improved fundamental backdrop driven by increasing AI demand. Palantir’s Artificial Intelligence Platform (AIP) is driving a significant acceleration in its US commercial business, while underlying metrics and the bottom line are rapidly improving.”
Revenue acceleration stemming from the commercial business is the major story for Palantir through 2024 and into 2025, with revenue growth poised to accelerate from 17% last year to 20% this year and nearly 21% in 2025.
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Strong Acceleration in US Commercial Is Driving Growth
In a deep dive at the time of Palantir’s direct listing, our firm said in 2020 that the “commercial sector is the growth story.” Palantir’s public offering was seen as a way to facilitate attracting and acquiring commercial clients before AI brought a wave of competition. The fruits of Palantir’s labor are beginning to pay off, with a newfound rapid acceleration in its US commercial business after AIP’s launch in Q2 was met with “unprecedented” demand. At its core, Palantir’s AIP is a comprehensive AI solution that lets customers lever Palantir’s AI and machine learning tools and harness the power of the latest large language models (LLMs) within Foundry and Gotham. Customers can deploy LLMs on their own private networks using their own private data, maximizing data security and improving efficiency by helping reduce data transfer and storage costs.
Although its US commercial segment accounts for less than 25% of quarterly revenue — it just surpassed a $500 million annual run rate in Q4 — it is now becoming the dominant factor behind the strong business momentum Palantir has seen over the past few quarters.
US commercial revenue rose 70% YoY to $131 million, a 37 percentage point acceleration from Q3 and a 58 percentage point acceleration from the year ago quarter. For the full year, US commercial revenue rose at more than double Palantir’s growth rate, increasing 36% YoY to $457 million.
The graph below illustrates just how strong the recent quarter was:
Source: PALANTIR
This acceleration in the US over the past two quarters is driving global commercial revenue higher. Palantir’s global commercial revenue accelerated by 22 percentage points, from 10% growth in Q2 to 32% in Q4. The segment topped a $1.1 billion annual run rate last quarter, up from a $920 million run rate two quarters ago.
Source: PALANTIR
While the revenue acceleration was the main headline for the US commercial business, a closer look reveals that the segment also drove more than 90% of Palantir’s customer additions with very strong underlying metrics.
Palantir reported 55% YoY and 22% QoQ growth in US commercial customer count to 221 in the quarter, as customer growth continues to accelerate. Over the past two quarters, Palantir has added 60 net new US commercial customers with 40 customers added in Q4 alone. This is more than 3X higher than the previous period of just 18 net new US commercial customers from Q4 2022 to Q2 2023.
Source: PALANTIR
Global commercial customers increased 44% YoY and 14% QoQ to 375 customers – representing 45 net new customer additions in the quarter. This means the US commercial segment drove more than 90% of Palantir’s net new customer additions in Q4. That compares to below 63% of net new customer additions in Q3 and just 20% in Q2.
This growth was “meaningfully driven by AIP” with Palantir saying that “demand is off the charts” for its new product. AIP is “propelling growth both through new customer acquisitions and expansions with existing customers,” with evidence of AIP bootcamps “helping to significantly compress sales cycles and accelerate the rate of new customer acquisition.”
Palantir had set a goal in October to hit 500 AIP bootcamps to drive top of funnel growth, and it has already surpassed that target, completing 560 bootcamps in just four months.
CRO Ryan Taylor commented on how this translates through to growth in the US commercial segment, with “70% year-over-year growth in revenue in Q4, 55% growth in customer count year-over-year, and a 107% growth in TCV closed on an adjusted basis […] Either it's — first, it's bootcamps that are quickly converting to paying customers or its expansion of existing customers or it's customers where maybe we've been engaged for a while and introduction of AIP, that whole process has been accelerated. We're seeing that across the board, and yet at the same time, we barely touched that addressable market.”
Engaging customers via bootcamps to then translating that engagement into new customer deals or expanded deals sets the foundation for sustained revenue growth at a higher rate, more so if it can drive its net retention rate higher.
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