The fall of Palantir - Earnings Review (Q1/2022)

Palantir's earnings have been released. Despite them maintaining a 30% revenue growth through 2025, the stock tumbled by over 21%.

Palantir Q1/2022 earnings vs forecast

Actual revenue was $432.87M compared to the forecast of $417.67M
Actual EPS was 0.02 was below the forecast is 0.0362 

Personally, I do not like how the EPS is reported as they actually have an EPS loss of 0.05 using GAAP.  If the company is making a net loss, the EPS should not be positive.

The following section is extracted from their earnings report:

Q1 2022 Highlights

• Total revenue grew 31% year-over-year to $446 million
• Commercial revenue grew 54% year-over-year
• US commercial revenue grew 136% year-over-year
• Government revenue grew 16% year-over-year
• Customer count grew 86% year-over-year
• Loss from operations of $(39) million, representing a margin of (9)%, up 2,400 basis points year-over-year and 500 basis points sequentially
• Adjusted income from operations of $117 million, representing a margin of 26%
• Cash from operations of $35 million, representing an 8% margin
• Adjusted free cash flow of $30 million, representing a 7% margin
• GAAP net loss per share, diluted of $(0.05)
• Adjusted earnings per share, diluted of $0.02

Q1/2022 Financial Summary for Palantir

Outlook For Q2 2022:

We are guiding to a base case of $470 million in revenue. There is a wide range of potential upside to our guidance, including those driven by our role in responding to developing geopolitical events.

We expect adjusted operating margin of 20%.

For full year 2022, we continue to expect:

• Adjusted operating margin of 27%.
• Per long-term guidance policy, as provided by our Chief Executive Officer, Alex Karp, we continue to expect:
• Annual revenue growth of 30% or greater through 2025. 

News extract from MarketWatch:

While Palantir PLTR, -21.31% slightly exceeded revenue expectations for its first quarter, it fell short on the bottom line. The company posted adjusted earnings per share of 2 cents on revenue of $446.4 million, whereas analysts tracked by FactSet had been projecting 4 cents in adjusted EPS and $443.4 million in revenue.

Palantir remained unprofitable on a GAAP basis in the latest quarter, though losses shrank. The company reported a GAAP net loss of $101.4 million, or 5 cents a share, down from $123.5 million, or 7 cents a share, in the year-earlier period.

For the current quarter, Palantir expects revenue of $470 million in its “base case,” which came in below the FactSet consensus of $484 million.

“There is a wide range of potential upside to our guidance, including those driven by our role in responding to developing geopolitical events,” Palantir shared in its release.

Deep Dive into Palantir's Q1/2022 financial statements

Palantir's condensed consolidated statement of operations

Comparing Q1/2022 versus Q1/2021:

• While YoY revenue growth is 31%, the cost of revenue grew by 27.3% and total operating expenses grew only by 2.69%.  
• This should spell a much improved net profit margin but Q1/2022 still ended with a net loss of $101M which is an improvement from the net loss of $123M incurred during Q1/2021.  This is largely due to the total stock-based compensation (SBC) worth $149M and an "Other expense" that accounted for $59.87M in Q1/2022.
• For the SBC, we are also seeing a further drop from $193M to the current quarter of $149M.  This is a drop of 29% but still accounts for a significant amount of expenses to the company.  Though it is part of the staff compensation, its "absence" can push the company into the black.
• There is also further share dilution from 1,821,158 (Q1/2021) to 2,036,307 (Q2/2022).  This is a concern as ownership was diluted by a further 11.8% over the year.

Balance Sheet of Palantir Q1/2022

Condensed Consolidated statements of cash flows

Observations from Balance Sheet & cash flow statement:

• There is an increase in net debts (assets less liabilities).  
• The cash and cash equivalent of $2,269M is more than the total current liability of $669M - a healthy position.
• There was a purchase of marketable security of $89.5M. The balance of market security in the balance sheet grew from $234M to $252M.  There is an unrealized/realized of $62M from marketable securities.
• The drop in Accounts Payable from $74M to $27M is good.  However, there is also an increase in the customer deposits (like an account payable - prepaid by the customer for current & future contract fulfilment) from $161M to $232M.
• Note that increase in depreciation and amortization from $3.2M to $4.3M.  Hopefully, this can be maintained.
• There is also an increase in the purchase of property and equipment $15M compared to $0.7M.
• The accounts receivable showing negative $65.8M under the cash flow statement.  This is puzzling - is this write off of bad debts?
• At the end of Q1/2022, the cash, cash equivalent and restricted cash dropped from $2,366M to $2,332M.  

Concluding Thoughts:

We are glad to see the strong 30% growth in revenue.  We can take comfort in their efforts to control expenses with efforts seen in costs of revenue, total operating expenses and stock-based compensation.

Palantir looks to be working its way to lesser losses and hopefully, profitability in a few quarters.  Note that the Ukraine situation can be a push factor for more to look to Palantir for various big data solutions.  We can expect more contracts being clinched if this is so. 

1D of Palantir as of 10 May 2022

For now, I will remain an observer, not an investor.

From the 1D chart above, the decline of Palantir should last for a few more days, pending the market sentiments and macro factors.  If they can get into the black, we can expect a strong climb.  However, the macro factors can be pushing the general market downwards, especially with various indicators pointing to a bear market.