# How Palantir makes money

CXProWealth Business Lens · Palantir (PLTR) · Q2 FY2026

Read from the 10-Q for the period 2026-04-01 to 2026-06-30, filed 2026-08-04 with the SEC (accession 0001321655-26-000041): https://www.sec.gov/Archives/edgar/data/1321655/000132165526000041/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $1.9B (+92.8% on the year)
- Operating income: $912.0M (operating margin 47.1%)
- Net income: $1.1B (net margin 54.9%)
- Gross margin: 84.7%
- Free cash flow: $1.2B (62.1% of revenue)
- Cash conversion (operating cash flow / net income): 1.15x
- Capital expenditure: 0.8% of revenue

## Where the money goes (Q2 FY2026)

- Government → Revenue: $990.0M
- Commercial → Revenue: $945.4M
- Revenue → Cost of revenue: $296.9M
- Revenue → Gross profit: $1.6B
- Gross profit → Total operating expenses: $726.6M
- Total operating expenses → Sales and marketing: $339.5M
- Total operating expenses → Research and development: $192.5M
- Total operating expenses → General and administrative: $194.6M
- Gross profit → Income from operations: $912.0M
- Income from operations → Income before provision for income taxes: $912.0M
- Other income (expense), net → Income before provision for income taxes: $91.8M
- Interest income → Income before provision for income taxes: $77.5M
- Income before provision for income taxes → Provision for income taxes: $15.4M
- Income before provision for income taxes → Net income: $1.1B
- Net income → Less: Net income attributable to noncontrolling interests: $4.1M
- Net income → Net income attributable to common stockholders: $1.1B

## Where the revenue comes from

### Segments (Segment and Geographic Information - Summary of Financial Information for Each Reportable Segment (Detail))

| Member | Value | Share |
|---|---:|---:|
| Government | $990.0M | 51.2% |
| Commercial | $945.4M | 48.8% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q2 FY2026 | Of revenue |
|---|---:|---:|
| Revenue | $1.9B | 100% |
| Cost of revenue | $296.9M | 15.3% |
| **Gross profit** | $1.6B | 84.7% |
| Sales and marketing | $339.5M | 17.5% |
| Research and development | $192.5M | 9.9% |
| General and administrative | $194.6M | 10.1% |
| **Total operating expenses** | $726.6M | 37.5% |
| **Income from operations** | $912.0M | 47.1% |
| Interest income | $77.5M | 4.0% |
| Other income (expense), net | $91.8M | 4.7% |
| **Income before provision for income taxes** | $1.1B | 55.9% |
| Provision for income taxes | $15.4M | 0.8% |
| **Net income** | $1.1B | 55.1% |
| Less: Net income attributable to noncontrolling interests | $4.1M | 0.2% |
| **Net income attributable to common stockholders** | $1.1B | 54.9% |
| Earnings per share attributable to common stockholders, basic | $0 | 0.0% |
| Earnings per share attributable to common stockholders, diluted | $0 | 0.0% |
| Weighted-average shares of common stock outstanding used in computing earnings per share attributable to common stockholders, basic | 2,399,820,000 |  |
| Weighted-average shares of common stock outstanding used in computing earnings per share attributable to common stockholders, diluted | 2,568,694,000 |  |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2018 | $595.4M | -$623.4M | -$580.0M | -$39.0M | $13.0M | -$52.0M |
| FY2019 | $742.6M | -$576.4M | -$579.6M | -$165.2M | $13.1M | -$178.3M |
| FY2020 | $1.1B | -$1.2B | -$1.2B | -$296.6M | $12.2M | -$308.8M |
| FY2021 | $1.5B | -$411.0M | -$520.4M | $333.9M | $12.6M | $321.2M |
| FY2022 | $1.9B | -$161.2M | -$373.7M | $223.7M | $40.0M | $183.7M |
| FY2023 | $2.2B | $120.0M | $209.8M | $712.2M | $15.1M | $697.1M |
| FY2024 | $2.9B | $310.4M | $462.2M | $1.2B | $12.6M | $1.1B |
| FY2025 | $4.5B | $1.4B | $1.6B | $2.1B | $33.9M | $2.1B |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +56.2% (year before +28.8%): accelerating
- Operating income: +355.5% (year before +158.7%): accelerating
- Net income: +251.6% (year before +120.3%): accelerating
- Free cash flow: +84.1% (year before +63.7%): accelerating

## Operating figures stated in the filing

- Customers (trailing twelve months): 1,049 customers (as of 2026-06-30). "During the period ended June 30, 2026 and 2025, we had 1,049 and 849 customers, respectively, including companies in various commercial sectors and government agencies around the world." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Customers (trailing twelve months): 849 customers (as of 2025-06-30). "During the period ended June 30, 2026 and 2025, we had 1,049 and 849 customers, respectively, including companies in various commercial sectors and government agencies around the world." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Average revenue per top-twenty customer (trailing twelve months): $124.0M (as of 2026-06-30). "Our average revenue for the top twenty customers during the trailing twelve months ended June 30, 2026 was $124 million, which grew 67% from an average of $75 million in revenue from the top twenty customers during the trailing twelve months ended June 30, 2025, demonstrating our expanding relationships with existing customers." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)
- Average revenue per top-twenty customer (trailing twelve months): $75.0M (as of 2025-06-30). "Our average revenue for the top twenty customers during the trailing twelve months ended June 30, 2026 was $124 million, which grew 67% from an average of $75 million in revenue from the top twenty customers during the trailing twelve months ended June 30, 2025, demonstrating our expanding relationships with existing customers." (Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS)

## Key insights

### Operating costs grew at about a third of revenue's pace

Revenue rose 92.8% while operating expenses rose 34.2%, so operating margin widened to 47.1% from 26.8% a year earlier.

Revenue rose 92.8% to $1.94B from $1.00B, while total operating expenses rose 34.2% to $726.6M and fell to 37.5% of revenue from 53.9%. Income from operations rose 238.6% to $912.0M from $269.3M. Every operating cost line shrank as a share of revenue: sales and marketing to 17.54%, research and development to 9.95%, and general and administrative to 10.05%, the slowest-growing line at 19.7%. _(from the filing)_
Gross profit grew faster than revenue, up 102.1% to $1.64B, as cost of revenue rose 53.9%. So both layers of cost lagged sales: the cost of delivering the software and the operating budget. The filing names stock-based compensation and payroll as the main drivers of the rise in sales and marketing, and third-party cloud hosting as the main driver of the rise in cost of revenue. _(from the filing)_
Most of Palantir's costs are people and rented computing, and they do not need to grow with each new workflow inside an existing account. When revenue nearly doubles on a cost base that grows by about a third, most of the extra revenue reaches operating income. This is a reading of the figures, not a rate the company commits to. _(analysis)_
These are reported figures that include stock-based compensation. The company's own adjusted measures exclude it and show a higher margin. The filing also warns that employer payroll taxes on equity awards move with the share price, so part of the cost base can swing for reasons unrelated to customers. _(from the filing)_

### One quarter out-earned all of fiscal 2024

Operating income of $912.0M in one quarter far exceeded the $310.4M earned in all of FY2024, and revenue topped FY2022's full year.

Income from operations in the June quarter was $912.0M, against $310.4M earned across all of FY2024, and was 64.5% of FY2025's $1.41B. Quarterly revenue of $1.94B was 101.6% of FY2022's full-year revenue of $1.91B. In FY2022 the company still reported an operating loss of $161.2M; its first operating profit in this history was $120.0M in FY2023. _(from the filing)_
Quarterly operating income has risen in each of the last six quarters shown, from $11.0M in Q4 FY2024 to $176.0M, $269.3M, $393.3M, $575.4M, $754.0M and $912.0M. Over the same span quarterly revenue rose from $827.5M to $1.94B. _(from the filing)_
The jump is the operating leverage of the first finding compounded over two years: revenue kept stacking on a cost base that grew more slowly. The Q4 FY2024 and Q4 FY2025 figures are derived from annual totals less the first nine months, not reported as quarters. _(analysis)_

### Free cash flow ran ahead of operating income

Free cash flow of $1.20B beat operating income of $912.0M, partly because little capital goes in and noncash equity pay is added back.

Operating cash flow was $1.22B and capital expenditure $14.6M, leaving free cash flow of $1.20B, a margin of 62.1% against an operating margin of 47.1%. Operating cash flow was 1.15 times net income attributable to common stockholders of $1.06B. Capital spending took 1.2% of operating cash flow and 0.75% of revenue. _(from the filing)_
The filing's cash flow statement shows two items that push cash above income. Stock-based compensation is a noncash expense, so it reduces income but not cash. And contract liabilities, deferred revenue plus customer deposits, rose over the half year, because many customers pay before revenue is recognized ratably over the contract term. Rising accounts receivable worked the other way. _(from the filing)_
This is a pattern, not one quarter's timing. Free cash flow exceeded operating income in each of the eight quarters shown, from $415.8M against $113.1M in Q3 FY2024 to $1.20B against $912.0M now. A year earlier, free cash flow was $531.6M on revenue of $1.00B. _(from the filing)_
Cash flow does not carry the cost of equity pay; that cost appears instead in the share count. Diluted weighted-average shares were 2.57B against 2.56B a year earlier. The filing says quarterly cash flows have fluctuated significantly and that the timing of billing and payment varies from contract to contract. _(from the filing)_

### Net income ran above operating income, on gains and low tax

Net income of $1.07B was 116.9% of operating income, lifted by investment gains, interest and a tax charge of 1.4% of pretax income.

Pretax income of $1.08B included $77.5M of interest income, 7.2% of the total, and $91.8M of other income, 8.5%, up from $6.6M a year earlier. The filing attributes the other income to a realized gain and upward adjustments on privately held equity securities and unrealized gains on publicly traded ones. The tax provision was $15.4M. _(from the filing)_
The low tax charge reflects, among other factors, the full valuation allowance the company still holds against its U.S. and U.K. deferred tax assets because of its history of losses. The filing says there is a reasonable possibility that it releases all or part of that allowance, given its recent and anticipated earnings. _(from the filing)_
Neither line is a property of the software business. Investment gains depend on the shares of other companies, and a tax charge this low reflects past losses rather than current economics. Operating income and free cash flow are the cleaner reads of the core business. A release of the allowance would bring a one-time gain to net income, followed by a fuller tax charge. _(analysis)_

### Competitive edge

- **Existing accounts, not new ones, carry the growth** Average top-twenty customer revenue rose to $124M from $75M while customers rose to 1,049 from 849, so depth outpaced breadth.
- **High gross margin on almost no capital** Gross margin was 84.66% and capital spending only 0.75% of revenue, as the platforms run on rented cloud and are configured, not rebuilt.
- **Government anchors revenue while commercial sets the pace** Government still supplies 51.15% of revenue, but commercial grew 109.8% against government's 79.0%, lifting its share by 3.94 points to 48.85%.

### What to watch

- **Cloud hosting costs pulled gross margin down from last quarter** Cost of revenue rose to $296.9M from $215.8M in the prior quarter, so gross margin slipped to 84.66% even as revenue grew.
- **Many contracts can be ended for convenience** Revenue is recognized over multi-year terms, yet many contracts allow termination on notice, and government work, 51.15% of revenue, depends on budgets.
- **The leverage that lifted margin also works in reverse** Expenses are largely fixed in the short term, so if revenue growth slowed, the margin gained at 92.8% growth would not hold automatically.

## Investor view

**Revenue nearly doubled while operating expenses grew about a third as fast, lifting Palantir's operating margin to 47.1%**

### How it makes money

"Our customers pay us to use the software platforms we have built." Palantir sells subscriptions to software hosted in its own cloud, term licenses run in the customer's environment with operating and maintenance services, and professional services. Contracts generally run one to five years, many can be ended for convenience, and "Revenue is generally recognized ratably over the contract term." Of quarterly revenue of $1.94B, cost of revenue took $296.9M, leaving gross profit of $1.64B. _(from the filing)_
The same platforms serve two segments. Government agencies paid $990.0M this quarter, 51.15% of revenue, and commercial customers $945.4M, 48.85%. The four platforms are Gotham for defense and intelligence, Foundry for data operations, Apollo for continuous delivery, and AIP, which connects third-party large language models to a customer's data and operations through what the company calls its Ontology. _(from the filing)_
Revenue grows mostly inside accounts the company already has. It counted 1,049 customers over the trailing twelve months, against 849 a year earlier, while average revenue from its top twenty customers rose to $124M from $75M. The filing says that "increases in revenue from our existing customers are related to increased adoption of our products and services within their organizations." _(from the filing)_
The cost structure explains the margin. Delivery cost is mainly engineers and rented cloud capacity, and the product is configured for each customer rather than rebuilt. Once a customer's data is mapped into the Ontology, each new workflow in that account reuses the mapping, so expansion revenue carries far less delivery and selling cost than the first deployment did. The expensive step is the first one: pilots and bootcamps the company largely pays for itself. _(analysis)_

### What shifted

Revenue rose 92.8% to $1.94B from $1.00B a year earlier. Commercial grew faster, up 109.8% to $945.4M, than government, up 79.0% to $990.0M, so commercial's share of revenue rose 3.94 points to 48.85%. The filing attributes most of the increase in each segment to customers that already existed at the start of the year, not to new ones. Revenue has risen in every quarter of the history shown, from $725.5M to $1.94B. _(from the filing)_
Operating costs grew far more slowly than revenue. Total operating expenses rose 34.2% to $726.6M and fell 16.4 points to 37.54% of revenue. Sales and marketing rose 39.3%, research and development 42.6%, and general and administrative 19.7%. The filing names stock-based compensation and payroll as the main drivers of the sales and marketing increase. Income from operations rose to $912.0M from $269.3M, a margin of 47.1%, up 20.29 points. _(from the filing)_
Gross margin rose 3.88 points year on year to 84.66%, as cost of revenue grew 53.9% against revenue's 92.8%. Against the prior quarter the direction reversed: cost of revenue jumped to $296.9M from $215.8M, while revenue rose to $1.94B from $1.63B, so cost grew faster than sales for the quarter. The filing attributes the year-on-year cost increase primarily to third-party cloud hosting services, partly offset by lower subcontractor expenses. _(from the filing)_
Net income of $1.07B exceeded income from operations. Other income rose to $91.8M from $6.6M, which the filing attributes to a realized gain and upward adjustments on privately held equity securities and unrealized gains on publicly traded ones. Interest income on cash and Treasury holdings added $77.5M. The tax provision was $15.4M, 1.4% of pretax income of $1.08B, with the filing pointing to the full valuation allowance it still carries on U.S. and U.K. deferred tax assets, among other factors. _(from the filing)_

### Risks in the filing

Concentration and cancellability. A limited number of customers account for a substantial share of revenue, many contracts allow termination for convenience, customers have no obligation to renew, and the U.S. federal government cannot exercise contract options more than a year in advance. The company says it has historically not realized the full deal value of its contracts, and that some customers have reduced spending or required refunds. _(from the filing)_
An expensive, uneven sales process. Sales cycles are long and unpredictable and often involve senior management, and pilots and bootcamps are offered at no or low cost with no guarantee of conversion. A large portion of sales closes in the last weeks of a quarter, expenses are largely fixed in the short term, and the company describes seasonality tied to the U.S. government fiscal year and to commercial budgets. _(from the filing)_
Public-sector and reputational exposure. Government revenue depends on budgets, spending priorities, appropriations and procurement policy. Work for governments and sensitive industries has drawn activist protests, investor concerns about human rights, and media scrutiny the company says it cannot always answer because of confidentiality. The filing adds that hostilities involving Iran have raised the risk of physical or cyber attack on its systems, facilities and providers. _(from the filing)_
Dependencies and growth itself. The company relies on third-party computing infrastructure and technology, faces intense competition including in AI, depends on retaining Alexander Karp and engineering staff, and says it may not sustain its revenue growth. It notes that a rising U.S. share of revenue leaves it more exposed to U.S. conditions, and that its multi-class share structure concentrates voting power with its founders. _(from the filing)_
Two of these risks already show in the numbers. Commercial and U.S. revenue are growing fastest, so the business is becoming more dependent on one country and on customers that can leave on notice. And the cost line that moved most this quarter is third-party cloud hosting, the very dependency the company names. Concentration in the largest customers, by contrast, is not rising on the filing's own account. _(analysis)_

## Founder view: mechanisms

### Pilots paid by the seller, expansion paid by the buyer

Palantir absorbs the cost of the first deployment. It runs pilots and short bootcamps, usually at its own expense, puts engineers inside the customer to connect real data to real decisions, and charges once the workflow proves itself. Revenue then grows as more teams in the same organization adopt workflows built on the same data model. Acquisition is a loss-making experiment; expansion is where the account earns. _(analysis)_

### One platform, configured per customer

Every customer runs the same small set of platforms. What differs is the configuration: how the customer's data, logic and actions are mapped into the Ontology. Engineering effort goes into the shared product once, and the per-customer work is mapping and training rather than custom code. That keeps delivery cost from rising in step with revenue. _(analysis)_

### Government anchors, commercial accelerates

The same software sells to governments and to companies. Government accounts are large, sticky and slow to win, and the filing calls them a meaningful source of revenue in periods of economic uncertainty. Commercial accounts adopt faster once the product works. Credibility earned in demanding government missions lowers the cost of persuading a commercial buyer, and commercial scale funds the product governments use. _(analysis)_

### Rented infrastructure, cash collected ahead

Palantir owns almost no physical infrastructure. It runs its hosted platforms on third-party clouds, buys capacity as an operating cost, and bills many customers when contracts start while recognizing revenue over the term. Little capital goes into the business, and customer payments often arrive ahead of the revenue they fund. The trade-off is dependence on cloud vendors and long purchase commitments to them. _(analysis)_

## Member research

Signed-in members read, on the page: what Palantir's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Palantir 10-Q for the period to 2026-06-30: https://www.sec.gov/Archives/edgar/data/1321655/000132165526000041/ (2026-08-04)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02