Palantir Earnings

Palantir reported earnings yesterday, and I already mentioned it briefly in my Morning Market Feed, but I want to take a moment to dive into it slightly deeper, as that is somewhat difficult to do in a newsletter, here we go. Before we start I want to give a little disclaimer, I have this stock on my watchlist and have owned it before. I have made money on buying this stock. I say this as I know Palantir is a very controversial company with many rigorous followers.

So let’s begin, but where do we begin? Let’s start at the raise of Full-Year guidance. Revenue guidance was raised to 2.677-2.689 billion, with US commercial revenue increasing to 661 million. Quite unnecessary if you ask me. Increasing revenue guidance by 0.7 to 0.9 percent doesn’t really make a difference, it might be better to just beat the numbers a bit as this probably works more favorably in the long run by giving investors more confidence. But then again, Alex Karp isn’t really known to work by the rules of Wall Street and this is what attracts numerous investors to his side. The biggest increase in guidance came at Adjusted income from operations, increasing the full-year guide by 4.1% on the low end, and 3.5% on the high end. Once again, not really worth putting it out there in my opinion, but expecting improvements in the business is a very good sign. Especially with the increased expectations from US commercial revenues.

Now before I go further, I just want to say how nice it is to listen to a conference call where they invested a bit into sounding decent. This makes it really nice and easy to listen to, especially at the prepared remarks in the beginning, although a sales pitch, very pleasant to listen to.

Now let’s continue with the numbers.

Revenue increased 21% YoY, a number that in itself is not really that great, in the way that there are many other stocks doing the same. What is really good however, is that cost of revenue grew slower, meaning increased margins, always very good to see, especially when the company is growing like it is.

Increases in expenses mainly came from R&D, as sales and marketing barely grew YoY. We also see that SBC hasn’t ticked up to much from a year ago, only in the R&D department. Now although there is an uptick in SBC, this is not directly an issue, the company increased all income metrics faster than it increased SBC, a positive.

Unfortunately, we also see a 10% increase in the diluted share count YoY, something I don’t like to see. Even if you say that you should at the basic number, it’s around 5%

The balance sheet does show some concerns, as it shows a large up-tick in accounts receivable. This number increased 33%, a lot more than revenue growth which is not a good sign. Accounts payable is a relatively small number, still it has ticked up, as it almost increased threefold from 12 million to 35.6 million.

GAAP EPS came to $0.04, as the adjusted number came to $0.08

As the stock rallied over the past period, there are people of course who are taking a different stand to the by and large bullish retail community. One such person was at Yahoo Finance after the earnings. It is important to note that the analyst has an underperform rating on the stock so expecting a lot of positivity from him may be misplaced optimism, but he has some valid points which can explain the share price reaction to the earnings.

RBC Capital analyst Rishi Jaluria claims that Palantir is not the cutting edge AI company that it claims to be, he says that he is skeptical about the abilities of the software, mainly due to how highly it is praised by the company. And he does have interesting points that could be worth looking into when analyzing this company. For one he says that the bootcamp strategy actually doesn’t fit the product it offers and that a combination of the bootcamp, and the not as amazing product made the growth slow down to 40% YoY, from 70%. He also said that the comps in the previous quarter were just to easy.

I think Rishi has a good point here. Before the AI hype cycle started, investors of Palantir were frustrated with the lackluster progress in expanding US Commercial revenues, and the sales team not performing up to expectations.

The slowdown from 70% growth to 40% growth is slightly alarming however, because if I’m not mistaken, the first quarter of AI enthusiasm was around Q1’23, this report covered Q1’24. Comps will become tougher and tougher so time will tell if Rishi’s points are valid, or if he is just a bear in a suit.

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