Palantir Technologies Shares Decline As Loss Surprises Investors

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Big data company Palantir Technologies reported fourth-quarter earnings Tuesday, topping Wall Street’s expectations for revenue but surprisingly earnings fell short. Shares slid 6% in premarket trading.

Overview

Revenue surpassed estimates of $300.7 million by Refinitiv’s survey of analysts, climbing 40% to $322 million for the quarter. Loss of $148.3 million or 8 cents per share was reported, incomparable to forecasts of 2 cents by analysts. The loss was $159.3 million or 29 cents per share in the same quarter last year.

Palantir Technologies – Growth

Founded in 2003 by the German-American billionaire Peter Thiel, Palantir Technologies is best known for its work with the Central Intelligence Agency and various government agencies. The company has also collaborated with big private companies including Rio Tinto and International Business Machines for data offerings. It went public in September.

Quarterly Revenue

For the quarter, the enterprise software company concluded 21 deals worth at least $5 million altogether in contract value, including 12 worth at least $10 million. New contracts include deals with the US Army, US Food and Drug Administration, and PG&E.

Segments

While Palantir mostly focuses on government deals for its data analytics software, it also serves commercial customers which account for less than half of the business. Government agencies use the company’s software for intelligence gathering, counterterrorism, and military purposes. It aims to expand into the healthcare, energy, and manufacturing sectors.

In Q3, when the company released its first earnings report, 56% of revenue came from the government segment. The segment continues to grow faster than the commercial segment. The revenue generated by the government segment surged 85% year over year, reaching $190 million in the quarter exceeding estimates of $164.6 million. Commercial revenue increased only 4% to $132 million, below estimates of $136.7 million.

Yearly Revenue

Revenue per customer jumped 41% to $7.9 million in 2020 as compared to 2019. Palantir’s top 20 customers produced $33.2 million each on average in the year, representing a gain of 34% year over year.

The company refrained from revealing an updated customer count this time or in its first earnings results in November after disclosing in its prospectus that it had 125 customers in the first half of the year. However, Palantir mentioned that its customer concentration had fallen, with 61% of sales generated from top 10 customers through Q3 as compared to 68% over the same period in 2019.

Earnings

In terms of operations, the company incurred a loss from operations of $156.6 million including $241.8 million in stock-based compensation and $18.9 million in related employer payroll taxes. Income from operations amounted to $104.1 million excluding adjustments.

Positive Outlook

For 2021, Palantir anticipates revenue to grow over 30%, less than 2020’s growth rate of 47%, while for the first quarter, revenue is expected to grow 45% with a midpoint of $332 million. The number is higher than analysts’ expectations who forecasted revenue of $309 million for the first quarter according to Refinitiv. For the long term, Palantir estimates to earn $4 billion in revenue by 2025.

Palantir Shares

The Denver, Colorado-based company joined the New York Stock Exchange through a direct listing on September 30 priced at $7.25 per share with an opening trade of $10 per share. The price led to a market capitalization of $16.5 billion. Since then, Palantir has more than tripled in value.

Shares closed at $31.91 Friday, giving the company a market capitalization of $52.6 billion. The lock-up period ends around February 19, with 80% of shares outstanding becoming open to trade. Shares fell 5% to $30.40 in premarket trading.

Reddit – WallStreetBets

The shares have attracted the attention of the online Reddit community, WallStreetBets which has been responsible for driving prices of various shorted companies including GameStop and Koss. But some analysts have warned investors that the company’s guidance doesn’t align with the meteoric rise in its shares. Shares jumped around 7% before the company released earnings results as it received numerous mentions on Reddit boards including WallStreetBets.

 

The governance structure of Palantir grants super-voting rights to co-founders Peter Thiel, Alex Karp, and Stephen Cohen giving them long-term control of the company. Moreover, as compared to other California-based tech companies, Palantir has been more willing to work with government agencies during Donald Trump’s era.

Employees of various companies, including Amazon, Google, and Microsoft, have pushed back on such contracts from agencies and military divisions including U.S Immigration and Customs Enforcement, Customs and Border Protection, and the Army.

Source CNBC Investor's Business Daily The Street

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