Palantir: Operating profitability and expense trends (Its Saul Goodman)

One of my go to metrics to look at how well a company is operating, is to look as cash flow generated from operations. When a company executes well, the cash flow from operations increases and the 'On balance cash flow from operations' (OBCFO) will increase from quarter to quarter. When this metric increases  quarter over quarter, or year or year, or quarter over quarter last year, these are positive signs of increase in operational cash. The reason, I really like cash flow from operations, is that this is a measure of recurring revenue which is inherent to the day to day functions of the company. The other cash flows are cash flow from investing activities (these include purchases of physical assets, securities, or the sale of securities or assets) and cash flow from financial activities (activities involving debt, equity, and dividends). These latter 2 cash flows are indicators of investment savvy and financial gymnastics of a company and no so much a reflection of how the company operates. The cash generated from operations can be reinvested into the company for growth in term of new tech, acquisitions, product development etc. With that brief introduction, lets look at Palantir and its cash flow for the past 8 quarters.

Cash Flow from operations compared to Stock price.

Figure 1: On balance cash flow from operations compared to stock price for Palantir

It took me a while to change my mindset, that a stock price is not the company and a company cannot be evaluated on basis of stock price alone. A stock price is a marker of the sentiment of what the majority thinks the company is valued. In any case, let compare the OBCFO to price of Palantir's stock. This is shown in figure 1. The price, is the closing price on the week, the results of earnings came out.

One of the immediate things to notice is that the OBCFO has increased over the last quarters and it shows a healthy uptrend. Another important feature in this figure, is what I call “fundamental bullish divergence” (green arrow), this happens when the stock price is trading lower and the OBCFO is actually higher, this usually, a strong clue for me to add to shares or enter a new position (provided I believe in the leadership and company management). This event happened after the March 2021 earnings, where the price was trending lower than its recent high.

Cash Flow from operations compared to reported sales and marketing expense.

 

Figure 2: On balance cash flow from operations versus Sales and Marketing expense for Palantir

This however is only part of the equation, if for some reason the cash flow is not increasing, like it did in quarters ending 6/30/2020 to 12/31/2020, then we absolutely must look for reasons why. One place which may explain why cash flow from operations was low, is if the company used some of that cash to either grow the operations (either by increasing sales and marketing) or by focusing on research and development. This is shown in Figure 2, as on balance cash flow from operations is falling (blue line) from periods 6/30/2020 to 12/31/2020, the reported sales and marketing expense is rising. So this fall in cash flow was a “good thing” (grey shape - dotted line)

Cash Flow from operations compared to reported Research and development expense.

Figure 3: On balance cash flow from operations compared to Research and development expense for Palantir

I also make it a point to look at R&D expense, after all, if a company is to grow, it needs to continue to innovate and apply those discoveries to further its mission. This is shown in Figure 3, as on balance cash flow from operations is falling (blue line) from periods 6/30/2020 to 12/31/2020, the reported expense for research and development is rising. So this fall in cash flow was a “good thing” (grey shape - dotted line)

 Palantir, in this case has executed flawlessly for the past few quarters and its all good man (In case you did not get the humor reference in title) and this give me good confidence that the company will continue to grow and as consequence of this, the stock will also continue to grow.

 Disclaimer: I am long term investor and own shares of Palantir. The data were obtained from public sources.

ZoomInfo (ZI) a history of opportune acquisitions

 Today, I wish to provide a little more color on one of my bigger positions ZoomInfo. ZI is US subscription-based software as a service (SaaS) company that sells access to its database of information about business people and companies to sales, marketing and recruiting professionals. Their tag line is simple

ZoomInfo is a leading go-to-market intelligence platform for sales and marketing teams.

Some Facts about ZI which made me invest in it: it has shows a 48% revenue growth over 3 years, 54% revenue growth (TTM vs prior TTM), gross profit margin 87%. Midcap at 24B. Its EPS growth was 50% and has a 97% institutional ownership. It is also part of my 'Hot watch list stocks' which is release every week on Twitter (see image for handle). These are the stocks that are potentially excellent picks long term and doing well in regards revenue and cash flows.  

I am of the firm opinion, that a business that generates positive and increasing operating cash flow is one which has the most opportunities to grow under able leadership. ZoomInfo checks all of those qualities hence is part of my portfolio. 

The stock has done well since I acquired it, and I anticipate it will continue to do well in future. The reason for this is the leadership at ZoomInfo has demonstrated acumen for acquiring companies that add to its value and provide a tremendous growth spurt. They are also exceptionally adept at making the right partnerships to further their business. That being said, here is a timeline chart of ZoomInfo acquisitions. On a side note, DiscoverOrg merged with ZoomInfo to be the company it is today, 2 of the acquisitions early on are this DiscoverOrg/ZI mash but that should not change our assessment of the company.

ZoomInfo: A timeline of acquisitions (blank) and partnerships (orange)

In order to further understand how these acquisitions added to the growth of the company, I have summarize this information in the table below (* represents partnerships).

Who	When acquired	Why was it acquired?	How (did it help?)
iProfile	2015	pioneer of sales intelligence for the technology industry	Combine iProfile’s comprehensive global professional contact and sales intelligence database with DiscoverOrg’s proprietary sales intelligence and analytics
Rainking	2018	delivering the most accurate intelligence that sales and marketing teams use	Solidify company’s position as the world’s leading B2B sales and marketing data provider, to accelerate pipeline and revenue growth
Y Labs	2018		To expand its center for product development and security operations.
Datanyze	2018	world-wide leader in technographic data: uses machine learning and proprietary methodologies to capture the technologies	be able to supplement its company and contact information with real-time alerts that enable sales and marketing professionals to sell based on customer technology decisions.
NeverBounce	2019	a leading provider of email verification and list cleansing services	enhanced accuracy of in-platform emails, seamlessly verify all email data in their internal marketing and sales systems
Komiko	2019	Komiko’s AI-powered CRM automation, playbooks, and predictive analytics	to accelerate the sales pipeline with valuable analytics,
Clickagy	2020	a leading provider of artificial intelligence-powered buyer intent data	Streaming Intent, an innovative solution that identifies companies with above-average search volume on business-to-business (B2B) topics within minutes of their web activity
Everstring	2020	a leading artificial intelligence-powered, business-to-business (B2B) data solutions provider.	EverString gives ZoomInfo a comprehensive business data graph, providing the foundation needed for enterprises to identify their total universe of customers and prospects, define their ideal profiles, leverage granular keywords and attributes to predict success, and focus their go-to-market motions.
BeyondCodes*	2021	a leading B2B demand generation company serving customers in India and globally.	partnership provides companies in India, as well as other countries in Asia, with direct and unprecedented access to ZoomInfo’s leading sales intelligence platform.
Leadspace*	2021	business-to-business (B2B) customer data platform provider,	partnership gives sales and marketing teams an unprecedented combination of B2B intelligence with enterprise-level data management and activation tools. Customers of Leadspace can now get access – via new connectors – to ZoomInfo’s leading B2B intelligence, so they can go to market more efficiently and effectively.
Snowflake*	2021	the Data Cloud company	Snowflake Data Marketplace to centralize and streamline data delivery. Customers can now use Snowflake’s platform to integrate ZoomInfo’s industry-leading company and business contact data into their technology stacks—with no additional integration or extract transform load required—and generate insights at scale.
Insent	2021	a powerful conversational marketing platform that identifies website visitors in real time, uses artificial intelligence (A.I.) and advanced lead routing rules	Initiate real-time conversations, and increases conversions
Lean Data*	2021	a leader in lead-to-account matching and routing	delivers a seamless, elegant product experience for their joint customers. provides customers with the ability to deliver leads to the right sales representatives with greater accuracy and speed, driving revenue growth.
ChorusAI	2021	a leader in Conversation Intelligence	Enable Insight-Driven Targeting, Coaching, and Decision-Making for Go-to-Market Teams
Ringlead	2021	an industry leader in data orchestration and revenue operations automation	Enable companies to streamline and execute data-driven go-to-market motions at scale based on high-quality, actionable data.

Thus every single partnership or acquisition ZoomInfo management has made, has been synergistic to the business and has propelled growth.

Disclaimer: All the information has been collected from public sources.  I own shares of ZoomInfo.