Transcription
Paler CEO Alex Karp is never shy about speaking his mind, and so it makes for really interesting commentary to evaluate when the CEO makes a statement. That's precisely what I'll do here in this video.
I'm going to evaluate the latest comments from Paler CEO following the company's quarterly results that were absolutely fantastic and are sending the stock price higher by more than 22% on the day following those announcements. So understandably, the CEO was excited about the performance and had some interesting things to say that you may be surprised to hear. Let's take a look.
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All right, the CEO said that the growth of our business is accelerating and our financial performance is exceeding expectations as we meet an unwavering demand for the most advanced artificial intelligence. Paler has been one of the companies benefiting the most from the rising demand for artificial intelligence. Enterprises and institutions worldwide are trying to capitalize on their proprietary data to make their business more effective, more efficient, increase revenue, decrease risk, decrease cost, lower inventory expense, and lower storage costs. There are many use cases for artificial intelligence to be incorporated inside an institution or enterprise that will enhance performance, and Paler is the best-in-class at providing this service, helping businesses use their proprietary data, their own information, to enhance performance.
You can see that in Paler’s results, which I will share with you next. Paler’s year-over-year growth rate of revenue has increased over the past six quarters, rising from 133% in Q2 2023 to 30% in Q3 2024. I have the data here below: from 13 to 17, 20, 21, 27, 30. You've probably heard me talk about this before, but this is excellent second derivative growth. Not only is it increasing revenue year-over-year by 30%—that's an excellent number—but that's also six straight quarters of increasing the rate of growth from 13 to 17.
Right? That's increasing the rate from 13 to 17, from 17 to 20. You've increased the rate again. And so now these consecutive quarters of increasing rates of increase have investors extremely enthusiastic about the potential for this business. Is it going to increase again in the next quarter? How much further will it increase? So it's all upside when this kind of phenomenon is happening.
It's the opposite if it were the opposite, right? Imagine this was flipped, and the rate of growth was decreasing like this. That would lead investors to be concerned about how much further these declines will go and raise concerns that the business is declining. They're not getting as many customers; customers are not renewing as often or spending as much. It raises risks rather than the opposite, which is what's been happening with Paler here. The continued increase in the rate of increase gets investors excited about the future, and they feel like, okay, this company's going to grow for sure in the next quarter; it's just a matter of how much it's going to grow.
As long as Paler continues to deliver this kind of increase, the share price will likely continue to grow. For instance, if in the next quarter Paler delivers 31% or more in year-over-year revenue growth, that's likely going to drive an increase in the stock price. However, if Paler delivers a year-over-year rate of growth that's below 30%, that would depress some of the enthusiasm for Paler's stock, as it would be the end of this streak of second derivative growth.
He goes on to say that their adjusted cash flow surpassed $1 billion on a trailing 12-month basis ending September 30, 2024. They now have an absolutely pristine—I've been saying this for several quarters now—but their balance sheet keeps getting better and better. They now have $4.6 billion of cash and marketable securities and zero debt. This gives the company great flexibility in utilizing their balance sheet to facilitate growth.
Now, for the past couple of years, they've just been building this cash pile, and they haven't really been utilizing it. That doesn't mean they can't; that just means that they haven't seen an opportunity to deploy this capital. But they have it there in reserve if there is an opportunity—they are ready to pounce on it. It gives them great flexibility, and on the flip side, if there should be any kind of headwind, the company has very sufficient cash flow and very sufficient cash balances to make it through any difficult times.
He goes on to say that companies and government agencies are racing to implement the technical infrastructure that's necessary to unleash the power of large language models across their proprietary and most valuable data sets. This is the key here with AI for enterprises—the kind that are employing Paler—here is using their proprietary data sets. This drives a lot of value for companies like, for instance, Walmart. They have so much proprietary data within their own business that they can utilize, data that's not available to any other business.
They can utilize that data to determine what kind of products to prepare for the holiday season and utilize that data to reduce the logistics expense of shipping products between its vast network, among several other categories that they can continue to utilize for several years before they reach the level where they can say, okay, there isn't any more decision-making info we can generate from all this data. But this is still very early days, and there is so much data that they can harness to improve operations.
Paler is the type of company that can help companies like Walmart utilize their data to improve operations. Walmart is such a large company, close to $600 billion in annual sales. So if Paler can help a company like that improve sales by just 1%, that would be $6 billion. Of course, they would be happy to pay Paler $500 million or $1 billion if Paler can help Walmart increase sales by 1%, right? That's just one example off the top of my head.
These types of services are best suited for large enterprises and large institutions, but increasingly so, Paler is making it more accessible for businesses on even smaller scales.
One of the more provocative statements from the CEO came towards the end of the statement where he said, "As America once again forges ahead, our allies in Europe are being left behind. Their private state institutions are sidelined in this pivotal moment, while the relentless innovation of US companies disrupts and reshapes global industries. Europe must adapt to the opportunities and challenges of AI or risk ruin."
This is following a trend of Paler's business where they've been extremely successful in domestic government business. However, their international government business has not been doing as well, so Europe is one segment that has been slow to adapt to Paler's services. Paler is not happy about that, saying that you better get on board here or you're going to be left behind, because the US is getting so far ahead in AI that if you're not going to be spending in this category, you're going to be left way behind.
Very interesting comments here from Paler CEO. He never fails to deliver on interesting and provocative commentary in his quarterly update to shareholders.
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