Palantir’s earnings have been released.

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

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

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

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.

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.

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.

Originally published at https://myinvestingmuse.blogspot.com on May 10, 2022.