On Monday evening, “big data” software provider Palantir Technologies (PLTR) released the firm’s fourth quarter financial results.
For the three month period ended December 31st, Palantir posted an adjusted EPS of $0.04 (GAAP EPS: $0.01) on revenue of $508.624M. The adjusted earnings print beat Wall Street by a penny, while the top line result was good enough for year over year growth of 17.5%. That print also beat expectations.
Checking out the statement of operations, gross profit increased 17.1% to $404.313M on a gross margin of 79.5%, which was down from 79.8% for the year ago comp. After operating expenses of $422.139M (+5%), the firm was left with operating income/loss of -17.826M (operating margin of -4%), which was an improvement from the Q4 2021 comp of $-58.943M. On an adjusted basis, operating income landed at $114M for an adjusted operating margin of 22%.
The difference maker for the quarter as reported was as much in the line labeled “Other Income”, which came to $44.637M, a swing from $-64.118M a year ago that pushed the firm over the top and into GAAP profitability. This income was a benefit related to the firm’s acquisition of Japanese business. It’s still money. It’s still income. but it’s not operating income, so if acting on this report, know enough to kick the tires.
What to Know
Palantir, because many folks do not know, is a builder and provider of software meant to organize, and integrate large data sets into decision making and operations at scale. Palantir operates through two segments, the Commercial and Government segments. The clientele that populates these segments are self-explicable. The government segment is not limited to US agencies.
Both segments work through three platforms:
1) Gotham enables users to identify patterns hidden deep within data-sets, ranging from signals to reports from confidential sources.
2) Foundry transforms the way clientele approach operations through the creation of a central operating system.
3) Apollo enables continuous deployment, and configuration management through centralized operations management across any environment.
Commercial revenue increased 11% to $215M
– US commercial revenue increased 12% to $77M.
Government revenue increased 23% to $293M.
– US government revenue increased 22% to $225M.
For the three months ended December 31st, Palantir generated $78.763 in net cash through operating activities. Add $1.918M in taxes related to stock based compensation and less $4.918M in the purchase of property and equipment. The firm is then left with adjusted free cash flow of $75.763M for an adjusted free cash flow margin of 15%.
Turning to the balance sheet, Palantir ended the period with a net cash position of $2.649B (including cash, equivalents, short-term restricted cash and marketable securities), bringing current assets to $3.042B. Current liabilities add up to $587.941M that includes $183.35M in deferred revenue. That leaves Palantir’s current ratio at a quite robust 5.17. Then consider that it’s really stronger than that as deferred revenue is a liability of labor, not capital.
Total assets amount to $3.461B. There are no intangible assets claimed on the balance sheet by the firm. Total liabilities less equity come to $818.802M, the lion’s share of the firm’s non-current liabilities being of the operating leases variety. There is no entry on this balance sheet for debt of any kind. This is a fortress-like balance sheet.
The outlook was solid, but revenue is seen as below what Wall Street was looking for. For the current quarter, Palantir sees revenue of $503 to $507M. Wall Street was looking for something around $520M. The firm also sees adjusted operating income of $91M-$95M. For the full year 2023, Palantir sees revenue of $2.18B to $2.23B. Wall Street was at $2.29B on this number. The firm also sees full year adjusted operating income of $481M to $531M. Oh, and the firm projects full year GAAP net income. That last line got some investor attention. So did this…
Along with the press release, Palantir CEO Alex Karp published his annual letter to shareholders. Briefly, Karp wrote on the quarter just reported: “A threshold has been crossed, and this is the start of our next chapter. We expect to generate a profit for the current fiscal year, our first profitable year in the history of our company.”
Karp continued, “This moment is significant and demonstrates to a broader audience the magnitude of the potential of our business, which is only now being revealed.” That’s what set the overnight buyer in motion.
The community of sell-side analysts appears to be far less impressed with Alex Karp’s words or the GAAP profit that was created by an improvement in non-operating income than were the pajama traders and the algorithms that lead them around. I have found six analysts (of all levels of stars at TipRanks) that have opined on PLTR since these earnings were released.
There are four “Hold” or hold-equivalent ratings and three “Sell” or sell-equivalent ratings among these six. There were no “Buy” or buy-equivalent ratings. Three of the six declined to set target prices, which in my mind, sort of invalidates their right to an opinion.
Of the four who posted target prices….
Gabriela Borges of Goldman Sachs (one star) rates PLTR as a “Hold” with an $8 target price.
Matthew Broome of Mizuho (three stars) rates PLTR as a “Hold” with an $8 target price.
Tyler Radke of Citigroup (three stars) rates PLTR as a “Sell” with a $5 target price.
Alex Zukin of Wolfe (five stars) rates PLTR as a “Sell”, but raised his TP from $4.50 to $6.
The quarter reported is encouraging. The guidance is less than hoped for. The CEO is confident. The balance sheet is the real reason an investor might want to be in and stay in this name in my opinion. The strength of that balance sheet is how this firm has “hung in there” throughout these tough times.
There is one problem that does not go away though, and an overnight rally like what we have just seen exacerbates this problem. Valuation. The stock still trades at 47 times forward looking earnings, almost 8.5 times 12 months worth of trailing sales and about seven times book. This stock remains expensive in this 2023 environment.
In addition, only about 6% of the float is held in short positions, so there will be some help on Tuesday that comes from that corner, but probably not enough for a real “squeeze.”
If I were long PLTR, I would probably have already taken at least some profits this morning. Key today for this stock will be its ability to hold on to not today’s gains specifically, but more importantly… that 200 day SMA (simple moving average) at $8.21. Lose that line and the entire overnight gap becomes vulnerable.
I would rather buy this name after that line holds than while it is being tested. Otherwise, I think I can wait until the 50 day line is tested later this winter or early spring.