The year-to-date stock price performance of SNOW$Snowflake(SNOW)$ and PLTR$Palantir Technologies Inc.(PLTR)$ have been poor on both an absolute and relative basis.
Snowflake's And Palantir's 2022 Year-To-Date Share Price Performance
The shares of Palantir and Snowflake were down by -29.5% and -37.4%, respectively, so far this year. During the same period, the S&P 500 declined by a relatively modest -5.2%. Both SNOW and PLTR saw their shares fall the most around mid-March 2022. A March 11, 2022 article highlighted that "Snowflake shares fell sharply" on the day alongside "several other cloud-related stocks, as investors continued to shun technology stocks."Apart from weak investor sentiment, which has hurt the share price performance of technology stocks in general, there are also company-specific headwinds relating to Snowflake and Palantir, which I detail in the next section.
SNOW And PLTR Stock Key Metrics
Both SNOW's and PLTR's forward-looking guidance disappointed the market. This was a key factor that led to the sell-down in their shares in 2022 year-to-date.Starting with Palantir, the company released the company's Q4 2021 financial results in a media release issued on February 17, 2022, before the market opened. PLTR's shares subsequently fell by -16% to close at $11.77 on the day of the earnings release. Palantir has yet to fully recover from its post-results announcement correction, as its last closing share price of $12.84 as of April 7, 2022, was still -8% below its pre-results stock price of $13.97 (closing price on February 16th).
PLTR's top line expanded by +34% YOY to $433 million in the fourth quarter of 2021. This was +4% above what the market had expected. The company's robust revenue growth was driven by a +71% YOY increase in the number of customers, from 139 as of December 31, 2020, to 237 as of year-end 2021, as per its recent quarterly results presentation. Palantir grew its client base much faster than what Wall Street was expecting; the sell-side's consensus 2021 year-end estimate was 219 clients, according toS&P Capital IQ.
However, Palantir's non-GAAP adjusted earnings per share contracted from $0.03 in Q4 2020 to $0.02 in Q4 2021. More significantly, PLTR's fourth quarter bottom line was approximately -44% below the market consensus EPS forecast.
Palantir's total adjusted costs (excluding stock-based compensation) rose by +42% YOY to $309 million in the most recent quarter. This was largely attributable to a substantial jump in commercial sales headcount, from 12 as of end-2020 to 80 as of December 31, 2021, as indicated in PLTR's Q4 2021 results presentation.Looking forward, PLTR's revenue guidance was encouraging. As per its Q4 2021 earnings press release, Palantir guided for Q1 2022 revenue of $443 million (implying +30% YOY top line expansion) and "annual revenue growth of 30% or greater through 2025."However, Palantir's near-term profitability guidance didn't meet market expectations. The company expects to achieve a non-GAAP adjusted operating profit margin of 23% in the first quarter of this year, which is much lower than Wall Street's consensus Q1 2022 operating margin estimate of 28%, as perS&P Capital IQ.
At theMorgan Stanley (MS) Technology, Media & Telecom Conference on March 9, 2022, PLTR explained that "the investments in the product" in 2021 "drove more improvement faster than we actually thought they might," and the company is "giving ourselves a little space there to invest as aggressively as possible."Moving on to Snowflake, its Q4 2021 revenue of $360 million beat the sell-side consensus by +3%, and this represented a +102% YOY growth. But SNOW's shares still dropped by -15%, from a $264.69 close on March 2, 2022, to $224.02 on March 3, 2022 (post-earnings release).
In the next one month or so, Snowflake's stock price declined further, closing at $213.88 as of April 7, 2022.SNOW's shares performed poorly because investors were unsatisfied with the company's fiscal 2023 (YE January 31) revenue growth guidance. Based on the midpoint of Snowflake's management, the company expected its revenue to increase by +66% in FY 2023. This implied a substantial slowdown in SNOW's top line expansion, as the company's sales grew by +106% in fiscal 2022.Snowflake attributed the weaker-than-expected revenue growth guidance for FY 2023 to platform performance improvements, which will provide more value to its clients.
SNOW acknowledged at the Morgan Stanley Technology, Media & Telecom Conference on March 8, 2022, that "every performance improvement we do, we may have a revenue hit," but it stressed that "those customers are consuming more" in around half a year's time.In the subsequent two sections of the article, I will touch on the similarities and the differences between Palantir and Snowflake.
Do Snowflake And Palantir Share The Same Market?
Snowflake and Palantir do share the same market to a large extent.A December 2020 research report published byHarris Williams classified both PLTR and SNOW as infrastructure software companies. More specifically, the investment bank placed these two companies in the "data" sub-segment of the infrastructure software sector alongside other listed companies like Splunk (SPLK) and Alteryx (AYX), among others.In a blog post published on November 11, 2020, Palantir describes itself as a "software company" which builds "digital infrastructure for data-driven operations." This provides support for Harris Williams' categorization of PLTR as an infrastructure company that belongs in the data sub-category.In summary, both companies operate in the infrastructure software market.
This is also where the similarities between PLTR and SNOW end, as I highlight in the next section.
How Do Snowflake And Palantir Differ?
Referring to PLTR's November 2020 blog post (which I referred to in the preceding section) again, Palantir mentioned that it plays the role of "data processor." PLTR emphasized that its platforms "allow organizations to better manage" data "by bringing the right data to the people" and enabling "them to take data-driven decisions" and "conduct sophisticated analytic."In contrast, Snowflake's cloud data platform, known as Data Cloud, is mainly focused on data warehousing and data sharing; and it partners with other companies to offer solutions such as data analytics to its clients.
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