Palantir is a software company that helps customers get the most out of their structured and unstructured data. Like many others, it pulls from years of AI/ML work to automate insight-gleaning. It utilizes complex neural networks to power anomaly detection, trend forecasting and natural language processing. It works openly with many database vendors for scalable, interoperable storage and low-latency querying, and offers its own tools there too.

Overall, it frees clients to conjoin disparate data sources while utilizing its software to uncover ideas that manual analytics and legacy competition cannot derive. It gives customers a bird’s-eye view of their operations, with detailed suggestions to help optimize products and workflows. This happens in a zero-stakes-or-risk environment via a process called Ontology. Ontology enables clients to freely test digital twins to actually observe what works and what doesn’t. It’s like split-testing on steroids.

Revenue is neatly split into two buckets – “government” and “commercial.” Government clients predominantly use its Gotham product platform, while commercial clients mainly use its Foundry product platform. With Gotham, Palantir routinely builds custom use cases for individual government clients. Foundry was built to be more malleable, with far more pre-built app integrations and developer kits available. That diminishes the need to conduct custom builds for every single private enterprise. Still, it does materially more custom building than a typical B2B software firm will. That’s more expensive, but has also led to wonderfully sticky client relationships with ample opportunity for up-selling. Like a client purchasing more modules from a vendor raises retention thanks to more unique value enjoyed, this accomplishes that in a different way.

It also seamlessly leverages the commercial platform to cater to industry-specific needs. By-industry models are intuitively named “micro-models.” These boast sector-specific use cases with granular, relevant regulatory compliance help. A financial services model from Palantir, for example, may specialize in assessing credit risk or fraud detection.

Palantir Apollo provides continuous integration and continuous delivery (CI/CD) to automate software package building and deployment. It’s a foundational piece of the firm’s ability to collect, utilize and drive value from broad data ingestion. It’s also how Palantir can help operationalize these learnings to introduce valuable products. It rips on other software firms for (it says) building “slide decks” rather than matching this real-world utility.  Apollo ties very closely into Foundry and Gotham as a software enabler for both platforms.

AIP 101:

In the realm of GenAI and Agentic AI, Palantir is not playing the GenAI game of building the biggest model or buying the most GPUs to have the largest infrastructure footprint. It simply gives clients the tools and integrations needed to build apps for their own, more powerful use cases. It also has some products for model customization, along with a large roster of 3rd-party large language model (LLM) integrations. And while that’s absolutely true, where it shines brightest in GenAI is as a leader in GenAI application monetization.

Its most exciting product is called Artificial Intelligence Platform (AIP). This is a highly intricate automation and AI app-building layer that complements Foundry and Gotham perfectly. The company compares AIP to what public cloud vendors did for compute and workload modernization. AWS, Azure, Google and Oracle provided the environment, tools, storage, security and maintenance needed to grow compute capacity without managing it yourself. This made migrations and adoption the rational decision. AIP attempts to do the same thing in terms of pushing enterprises to build and use GenAI applications. This fully manages expedited product creation for client deployment. It allows for open collaboration between software developers, data scientists, models and project managers to ensure effective work. It directly supports Foundry and Gotham by uplifting and augmenting potential use cases to “extract value from GenAI models.” And it does so in a quite compelling way that can craft tools on a by-customer basis.

Considering the lack of finite and structured end products stemming from AIP, I think it helps to hear about some examples of what clients are doing with it:

As leadership will tell you, AIP isn’t just another dime-per-dozen chatbot. It’s an aggregator of data, tools and services needed to actually build valuable apps and to embrace GenAI. It’s how Lowe’s cut overdue task rate by 75% and how General Mills saves $14 million a year in expenses. This is how Associated Materials is raising on-time delivery rate from 40%-90%, how Trinity Rail cut $30 million in annual CapEx and how Mount Sinai found $13 million in new revenue opportunities. It’s how the U.S. government cut critical intelligence sharing processes to 3 days to 3 hours. The list goes on and on. AIP is where jumbled data, processes and ideas turn into the operationalized, actionable creation of GenAI products.

Initial go-to-market for AIP has been its “bootcamps” where it hosts events to provide hands-on support and “get clients from 0 to use case in 5 days. It has more recently begun to build out an external sales team to support this segment’s momentum. AIP progress is most noticeable in its impressive U.S. Commercial results.

“We are delivering the operating system for the modern enterprise in the era of AI.”

Co-Founder/CEO Alex Karp

More Products to Know:

Overall Demand:

Forward-Looking Demand Signals:

Segment Demand:

More stats on U.S. commercial Demand:

Its existing top 20 customers grew revenue by 26% Y/Y. This helped net revenue retention (NRR) climb to an impressive 124%. Very few companies are delivering this type of Q/Q NRR improvement in this market. Massive billings and RPO beats, as well as rapid TCV and RDV growth, bode extremely well for forward-looking demand.

Palantir trades for 223x forward EPS. That’s not a typo. EPS is expected to compound at a 30% clip for the next two years. The large annual guidance profit raise should bring the multiple down by a couple of turns.

This was the shortest call I’ve covered in a long time. To their credit, they don’t really talk for an hour if things are going this well. And so they didn’t. It was a sub-40 minute call without much new detail shared. That’s why the review below is a bit lighter than they usually are.

AIP:

Shockingly, AIP was the rightful main theme of the call. As leadership puts it, AIP is the bridge between “expanding raw capabilities of large language models” and actual value creation through its powerful ontology engine. And that bridge is getting less treacherous and expensive for prospective clients to maneuver. Meaning? Palantir continues to see AI models “progress” and become “more similar to each other” while cost disinflation unlocks how much compute companies can affordably use. That’s a perfect scenario for Palantir. As arguably the kind of app-layer monetization within GenAI and agentic AI, it wants lower costs among other parts of the technology stack to motivate customers to fully embrace complex, multi-step agentic AI applications. That’s where AIP shines, and it keeps shining brighter every quarter. Things are “accelerating” as the “quantified exceptionalism” customers see from AIP easily wins them over.

That’s so important to highlight. App layer monetization has been slow because clients are not getting a compelling ROI or enough bang for their buck. Palantir is winning because it has countless case studies (which we’ll get into) showing how absolutely massive AIP’s impact has been for its customer base’s financial success and competitive differentiation. The macro backdrop for closing large deals got worse, if anything, during the quarter. But? It’s when chaos strikes that Palantir does the best and takes the most share because companies are forced to do more with less and figure out how to navigate challenges. AIP does that for them.

“While organizations may consider curtailing spending to drive efficiencies or weather heightened volatility, they find this is the moment they need Palantir the most.. “We are built to help companies embrace volatility.” – Chief Revenue Officer Ryan Taylor

It’s how legacy insurer AIG will plan to double its 5-year forward revenue CAGR; it’s how the Army created a hurricane rescue system in 5 minutes, rather than days; it’s how Heineken completed a 3-year project in 3 months. The list goes on and on, and inherently inspired a global bank and two large healthcare organizations to go from boot camp to 7+ figure deals in weeks. Going forward, Palantir wants AIP to create fully “autonomous companies.” It doesn’t care about building chatbots to boost productivity by 50%. They are focused on making companies “50x more productive.”

“AIP as a platform enables our customers to rapidly build and deploy AI agents that automate more and more of the enterprise in a continuous fashion.” – CTO Shyam Sankar

“The rush towards large language models, as well as the foundational software architecture that is capable of making them valuable to large organizations, has turned into a stampede.” – Co-founder/CEO Alex Karp

Government Business:

Maven, PLTR’s Department of Defense AI and data analytics platform, is seeing rapid adoption across the globe. From the combatant commands for the U.S. military to NATO buying its AI command solution, adoption is doubling at a 5-month pace and greatly accelerating.

In terms of the Department of Government Efficiency (DOGE), that’s accelerating the U.S. Government opportunity for Palantir and unlocking larger potential contracts. As many have said, the firms that need to fear DOGE are the firms providing zero value. Palantir provides immense value.

International:

Karp continues to be highly critical of Europe. According to him, they “don’t get AI.” He’s optimistic they eventually will. Ex-Europe revenue rose 49% Y/Y, while Europe is why international commercial revenue fell 5% Y/Y. Most of its attention will remain on the U.S., but it did talk about great demand for ally nations outside of Europe potentially providing more upside to results.

More Notes:

Another incredible quarter from this elite company. It’s now obvious that Palantir is leading app value creation and monetization within the AI boom. You can argue Microsoft is enjoying a larger impact within Azure, but Palantir doesn't have a larger Nvidia GPU reselling business like Azure does. This is all software monetization and that is entirely unique in markets. AIP is the best software launch of the AI era and this just marks more evidence. 

Like I’ve said over the last few quarters, the only thing I can’t stand about the company is the valuation. I love everything else. I cannot bring myself to pay a triple-digit sales multiple for a stock. It’s as simple as that. If it inexplicably goes to 200x sales, I’ll again congratulate shareholders for a job well done. I just don’t see risk/reward as compelling at this starting valuation. Does that mean it can’t go higher? No. It just means I think there’s a better chance that other things go higher. And all I can say to those who accepted a sky-high multiple because the company was just that special? You look very smart right now and this excellent quarter doesn’t change that at all. Congrats to you. It’s very hard to deliver upside surprise and fun earnings reactions at this firm’s current multiple. That’s likely why a stellar quarter is not getting rewarded like it would for most companies.

Hims sells personalized men’s and women’s health products with a direct-to-consumer business model. It aims to allow users to more comfortably access sensitive prescriptions for issues like erectile dysfunction or hair loss, without going to an office or a pharmacy. Products are mailed right to a consumer’s door to provide ultimate privacy. 

It offers both standard and personalized medicine and subscriptions for customer savings & Hims retention boosts. Personalization is enabled & amplified by its electronic medical record (EMR) system. From its early days, it sought to build this EMR foundation to enable scalable data ingestion, automate tedious provider work and foster rapid product expansion. That will remain absolutely vital in the firm’s future. It paved the way for MedMatch, which is the company’s tool to data mine all customer interactions and uncover valuable consumer insights. This, in turn, supports best provider practices. It also enabled Clever Routing, which contextualizes individual user needs; it also helps prioritize and match demand with proper levels of care.

“Our historical strengths include developing a trusted brand, deploying technology to remove barriers to access, and providing access to personalized solutions and services at an affordable price.”

Founder/CEO Andrew Dodum

Despite being founded just 8 years ago, Hims is already nearing a $500 million quarterly revenue run rate, with great margins. It’s founder-led and competes with smaller vendors like LifeMD, Keeps, and Amazon.

Hims did not disclose average order value (AOV) for the first time since going public this quarter. Impactfully efficient marketing drove great top-line outperformance, as it has in recent quarters. The ARPS growth was again driven by weight loss GLP-1 drugs, which will moderate as it moves people off commercially available Semaglutide (popular GLP-1; more later) options. Note that Y/Y growth comps still are measuring quarterly revenue vs. a period before it launched GLP drugs at scale. Comps normalize during Q3 of this year.

Hefty gross margin contraction is worse than analysts expected, but HIMS has been open about material GPM contraction coming this year. It’s mainly in relation to GLP-1 growth. This was offset by rising economies of scale across its entire value chain.

On marketing efficiency gains, there’s a lot to unpack. The marketing payback period remains below 12 months. Increasingly impressive as it scales. It’s also good to note that the quarter included its first Super Bowl ad. The leverage was despite this (revenue outperformance helped a ton). Things like improving retention, higher brand awareness and heightened spend pickiness in some areas also helped. Finally, it shifted dollars to weight-loss marketing during the Super Bowl. Per the team, this created some disruption as they shifted dollars back to other areas following the event. Rather than expect lower returns, they just temporarily spent less. That helped profit outperformance a bit… clearly without impacting their ability to beat on revenue.

$59M in CapEx went to expanding its manufacturing and testing footprint, as well as some manufacturing automation projects.

Hims also provided 2030 revenue and EBITDA targets of $6.5B+ and $1.3B+, respectively. That’s at least 8.3% ahead on revenue and at least 18% on EBITDA. Multi-year targets are always inherently uncertain; these are unquestionably upbeat.

Hims trades for 38x forward EPS. EPS is expected to rise by 14% this year and by 24% next year. Estimates will likely rise a bit following this report and the annual EBITDA raise.

The EBITDA chart is the best chart for this name, considering it hasn’t been GAAP net income positive for all that long.

Partnerships & GLP-1:

The big news during the quarter was the recently announced Novo Nordisk and Hims GLP partnership. Hims subscribers can now access Wegovy (Semaglutide-based GLP-1) right on the website. They can take advantage of the same adherence-boosting 24/7 care and clinical support that the Hims platform offers, while being able to directly purchase a commercial-dose version of its popular drug. As a reminder, Semaglutide was removed from the FDA shortage list earlier in the year. That now blocks Hims from selling commercially-available, non-personalized doses of Semaglutide, which it had been selling on its site. It can still sell personalized Semaglutide (custom dosages, excluded ingredients, added vitamins etc.) for those with side effects to the commercially-available options.

This gives them much more clarity and certainty pertaining to carrying options for this go-to chemical. And it also sounds like Hims and NVO are aligned in terms of what Hims can consider for a patient needing a personalized option.

This is a large net positive in my mind, but there are pros and cons to consider. On the bright side, this should be positive for overall revenue generation and diminishes someone pressing legal risk with Novo-Nordisk. They (and Eli Lilly) have complained about how liberal Hims has gotten with who requires personalization. It’s a legal gray area, which is why stated alignment between HIMS and NVO on personalization is so vital. 

Large biotech companies have every reason to defend the massive R&D dollars that went into designing this drug. After all, they are supposed to get lengthy exclusivity windows and this personalization loophole was seen as a threat. This language makes it modestly less risky. While they still need to play nice with Eli Lilly, this signals an improving relationship — at least with NVO. 

“With regard to Lilly, we would love to continue to broaden the partnership opportunities on the platform. Currently, we go through the supply chain, not through a direct integration with Lilly. We continue to have conversations with the leadership of that organization. At this point, we've not been able to bring those offerings onto the platform, and we hope that we can.”

Founder/CEO Andrew Dodum

On the other hand, Wegovy sales are less differentiated vs. the personalized Semaglutide options it has, as NVO has already signed multiple similar deals with other platforms. They simply want to expand reach. Furthermore, the cost is about $599 per month, vs. $165 per month for the custom solutions Hims was offering. That means more buyer friction, while NVO also gets a large cut of the revenue. In turn, this business will be lower margin than its sales during the shortage, and personalized injectables today. While that’s all true, I again think it’s a convincingly net positive — especially given guidance calling for great future leverage despite this.

Hims expects to finish transitioning subscribers from the compounded (normal dose) Semaglutide to personalized Semaglutide, the branded Wegovy option, oral options or new Liraglutide (different, less popular compound) by the end of Q2-2025. Considering that, I think the Q2 guide is actually not that bad. Especially paired with the annual guidance reiteration. That’s a byproduct of Hims effectively communicating and shifting subscribers to all of these other options. Good execution. They did not reiterate the $725M annual weight loss revenue guidance, but when asked about it they didn’t talk about any assumption changes either.

More on the NVO Partnership:

Hims sees NVO as a domino of sorts. Hims believes that NVO will serve as a template for many other partnerships with industry players. That will deepen the breadth of its offerings and help Hims become a more powerful cross-seller with even higher retention. 

“Beyond this initial launch, we are developing a broader roadmap together with Novo Nordisk, as well as a blueprint for future partnerships, to deliver access to quality care at scale, improve long-term outcomes for people living with chronic disease, and make care more affordable.”

Founder/CEO Andrew Dodum

Personalization – The Key Ingredient in Any Bull Case:

Hims continued to add personalized subscribers at a rapid clip. It reached 1.4M personalized plans and maintained its 200,000 net new additions per quarter pace for the 3rd straight quarter, after adding 100,000 net new in each of the three quarters before that. All in all, personalized subscriptions are now 60% of total vs. 35% Y/Y, and that should continue to climb with 70%+ of new subscribers on personalized solutions. 

“[Personalization] results like this give us strong conviction that we are not simply gaining market share through consumer rotation… Our strengths are allowing us to expand the overall market by democratizing access to higher-quality treatment across the country.”

CFO Yemi Okupe

Why does this matter? Any Hims bull case hinges on using proprietary data from a growing base of subscribers to drive personalization. That is what can potentially create enough differentiation to durably stand out from the pack.

Selling the exact same things as a dozen other direct-to-consumer medicine companies invites price competition, margin degradation, higher churn and customer acquisition costs and, generally speaking, eroding fundamental health. When you have a company like Amazon meaningfully entering this space, Hims has to do something to separate itself from the others. Amazon can easily use generic and branded medications as loss leaders to undercut Hims and everyone else, take their market share, and harvest margin with one of the other dozens of product categories it sells. Hims doesn’t have the Amazon luxury. Its money-making needs to come from this core business.

Personalization helps a lot here, which can be seen in a full 20-point lift to member retention rates on personalized vs. non-personalized solutions. We can have our opinions on how impactful this positioning truly is, but that evidence is quite positive and speaks volumes. I go back and forth on how durable this kind of differentiation can be over the coming years. But? The current trends indicate that, for the time being, it’s working with compelling margins. These are long sentences. What does personalization mean here?

Things like removing ingredients to eliminate side effects, combining prescriptions into one pill, adding vitamins and supplements to a drug, various form factors and diverse dosages. They’re not the only ones who can do this (other pharmacy compounders offer it), but they are one of the only doing it at scale. They also have lower headline consumer costs and an ever-expanding custom pharmacy manufacturing footprint. That footprint isn’t free to build; these capabilities aren’t free to build. I can keep saying “Well everyone else will just do this too.” But? The longer that takes, the more entrenched Hims becomes, the more known its brand becomes and the harder to displace it becomes. They’re ahead in this regard and that lead is not irrelevant.

Personalization Going Forward:

Hims has its eyes on several more specialties to drive even deeper personalization and broaden its value proposition. In dermatology, this has already led to 80% of total subscriptions being personalized. It has helped hair loss subscriptions (one of its most mature products) maintain 45% and 170% Y/Y growth for men’s and women’s, respectively. In weight loss, they think this is a key contributor to 300% Y/Y oral subscription growth. Going forward, it will focus on sexual health treatment customization.

Most of its business up until now has been all on-demand; they want that to change (with the help of personalization options like vitamin inclusion). Hims leadership is shifting go-to-market towards daily solutions for heart, hair loss, low testosterone and vitamin personalizations. Sexual health subscribers using a daily solution rose from around 10% to nearly 40% since 2023. This has helped lift retention for sexual health subscribers by a full 10 points Y/Y. In the near-term, re-educating customers on this less-known option is slowing growth a bit. But they’re focused on optimizing long-term value creation and are adamant this is a temporary concession they should make to get there.

Deepen Subscriber Value:

Hims has a few plans for augmenting subscriber value this year. Its new at-home lab testing capabilities (that were acquired) are unlocking significant blood testing potential, with a “lower fear factor compared to traditional needles.” Consumers can access these tests from home. Hims thinks these capabilities will allow it to add heart, hormone, liver, thyroid and prostate use cases down the road. Pairing this capability with lab testing expansion is paving the way for a presence in low testosterone and menopause services. 

“These tools will support our current specialties and unlock entirely new ones.” –

Founder/CEO Andrew Dodum

Non-Weight Loss Business:

Ex-GLP-1 growth was still nearly 30% Y/Y. That’s meaningfully slowing but still quite rapid. And the still-brisk growth is despite shifting marketing dollars to its weight loss solutions during the quarter and the aforementioned change in sexual health go-to-market.

Unchanged Long-Term Priorities:

“Our vision involves expanding from hundreds of personalized treatments today to potentially thousands.”

Founder/CEO Andrew Dodum

“Over time, we expect wider collaboration across the industry from pharmaceutical players, innovative leaders in diagnostic and preventative testing, to world class providers.”

Founder/CEO Andrew Dodum

Leadership:

Hims named Nadir Khabani as its new COO. He was an SVP at Symbiotic most recently. He has also been an EVP at Flexport (large private logistics company) and was the VP of Operations for PillPack and Amazon Pharmacy for three years as well. He has a great resume and relevant, hands-on experience with a direct competitor.

Another strong quarter from Hims. While the Q2 revenue weakness isn’t ideal, the reiterated annual revenue guidance, despite sexual health headwinds, is encouraging. It shows that the team deeply understands the regulatory climate, its industry and how evolving rules directly impact its financials. I loved seeing them not add incremental headwinds from the Semaglutide change this quarter.

It’s obvious that this leadership group is highly capable and masterfully executing every quarter. I just still do not love the business model. I don’t think direct-to-consumer healthcare provides an opportunity for durable differentiation. I don't want to deal with the regulatory headaches and worry that Amazon will use competing products as a loss leader to grow its own pharmacy business at cheaper prices. I admire how this company has overcome what I view as a risky business model with superb operations and surgical maintenance of its growth drivers. I just would rather focus my attention on other names where I view the risk/reward as better and existential risks as less likely.

Congratulations to shareholders on another wonderful performance. I will continue to root for you bulls from the sidelines. The luxury of being a long-only investor. I’d rather see every company do well.