Palantir Technologies (PLTR) Tumbles On A Q1 EPS Miss As Its Valuation Continues To Weigh On Shares
2:22 pm Monday, May 09th, 2022
Palantir Technologies (PLTR) is facing a sharp sell-off today after the software-based data analytical company’s posted its second-straight earnings miss for Q1. Piling on to PLTR’s miss is a string of other weak points, which become especially pronounced when viewed against the backdrop of the stock’s pricey multiple of ~50x forward earnings as of Friday’s close. Factoring in today’s pullback, PLTR has slid roughly 60% in 2022, dipping significantly below its opening price of $10 per share in September 2020.
The strong reaction today stems partly, in addition to PLTR’s Q1 earnings miss, from the company’s secrecy, which has not helped to assure investors of the company’s long-term growth profile. CEO Alexander Karp noted on today’s call that PLTR is playing a much bigger role than it is allowed to mention or would ever discuss in public and that the company would love to someday discuss precisely what it is doing.
In Q1, adjusted EPS fell 50% yr/yr to $0.02. However, revenue jumped by 30.8% yr/yr to $446.36 mln, driven by solid commercial revenue growth of 54%. Even better was US commercial revs, which more than doubled at 136% yr/yr.
However, even though Q1 sales growth exceeded PLTR’s expectations, investors are keying in on an ongoing slowdown in government revs, which grew just 16% yr/yr in Q1. In 4Q21, government revenue growth was +26%, which was already a sizable drop-off from +34% growth in 3Q21 and +66% growth in 2Q21. As 58% of FY21 sales derived from governments, this deceleration is particularly worrying.
On the bright side, PLTR expects US government revenue (which makes up the majority of total government revs) to accelerate into 2H22, primarily due to the passage of a new budget. For example, in Q2-to-date, PLTR is already seeing a re-acceleration of US government revs, and it expects the overall government segment to catch up in Q3 or shortly thereafter.
Nevertheless, these few bright spots are being massively overshadowed by PLTR’s lofty valuation of around 50x forward earnings, its decelerating government revenue growth, and the fact that much of the company’s work remains somewhat of a mystery. Last quarter, we continued to urge caution trading on PLTR due to its high multiple and to a concerning trend of weakening results. We continue to hold this view. However, PLTR is one to keep on the radar, as accelerated digitalization trends are likely to drive an accumulation of data that could contain insights into improving companies’ productivity.
On a final note, even though their business models differ, other data analytical organizations, such as Snowflake (SNOW), which trades at 24x forward sales, and C3.ai (AI), at 6x forward sales, could face similar fate when reporting AprQ earnings on May 25 and June 1, respectively.
