To The Moon

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As expected, the share price of Palantir took a massive dive after the earnings call. Overall, the results aren’t that bad. Some graphs and information are purposely and tactfully removed. There might be some cracks coming through in the short term, but at the moment, the long-term outlook looks alright to me.

Financials

Adjusted operating margin (Excluding SBC and related employer taxes) is on a clear downtrend even after excluding SBC and related employer taxes. This is mainly due to an increase in the sales and marketing expenses which is in line with the hiring of 300 sales personnel. With this, I would expect revenue to continue improving over the next few quarters.

GAAP operating margin is steadily improving (-14% to -9%). With the current trend, we might see Palantir breaking even or turning an operating profit this year.

Palantir is well prepared for this period of macroeconomic condition. It expanded credit facilities to $500m which is undrawn, having 2.3b cash on hand and 0 debt.

Net customers increased to 184 but net dollar retention decreased to 124%, meaning their existing smaller customers might not be spending as much. Also, we have no visibility on how big these new customers are, or how long were their contracts. If they have a smaller profile than the existing customers, an increase in number will not translate to an equal increase in commercial revenue.

16% government revenue growth is disappointing, given the fact that it achieved IL-6 and is a strong company to combat the uncertainty of the world’s events right now. Government contracts usually take a long time to be done, even more for multi-million projects. Even so, a slowdown in government revenue is not what I would like to see as the total government revenue stands at almost half of Palantir’s total revenue. Government growth has been slowing down for the past 4 quarters, which should be taken into consideration, given that almost half of the total revenue comes from the government side. However, total commercial revenue growth grew by 54% which is very good. With the sales team starting to ramp up in the EU region, we can be looking at an exponential increment over the next few quarters. They are taking more market share every quarter and this is a really good sign.

Palantir’s SPAC investments have taken a hit, partly due to the macroeconomic factors going on currently. As their investments are in growth stocks, their share prices are hit greatly, which causes a massive unrealized loss in Palantir’s books. Palantir also mentioned that they will not be accepting future customers and investments from this program going forward.

Remaining performance obligation, total remaining deal value, deals closed and billings increased healthily. These are guaranteed revenues that will be recorded in their books over the next few quarters. Coupled with the ramped-up sales in the EU region, we should be looking at an accelerating revenue growth. However, we also see that the total remaining deal value actually decreases from Q3 2021 to Q1 2022 (3.6b to 3.5b. Q4 2021 figures were omitted from the earnings report). If the number of customers increases, net dollar retention decreases, and the total remaining deal value decreased, we should be looking at smaller customer acquisitions in Q2 2022. This will be a concern as the government revenue is slowing down a lot, and the commercial revenue is unable to cover the decrease in government revenue. This should be taken note of in the next few earnings call to see if Palantir is able to hit the 30% annual growth guidance.

Lastly, SBC has been coming down QoQ (167m to 149m). This is still a large number, but I see that the management is trying to normalize the SBC as per Q4 2021 earnings call. This is a good trend to prevent further dilution of existing shareholders’ shares and I would like to see the numbers continue to decrease.

Forward guidance

Guiding for 25% next quarter YoY might be sandbagging expectations. They have already mentioned that there is a re-acceleration of overall government revenue starting Q2 2022. But why aren’t they guiding for 30% which is in line with the long-term revenue growth guidance?

The adjusted operating margin for Q2 2022 is expected to be 20%. There is a constant decrease over the past quarters. By excluding SBC and related employer taxes, we see that the company is actually spending more on operations every quarter. This could be mainly due to an increase in marketing and sales effort as they are ramping up their sales team. This is a fair trade-off if we are able to see the number of commercial customers increasing at the same or higher pace compared to the current quarter. I would also like to see net dollar retention to increase as we see a slight decrease QoQ ( 131% to 124%).

Institutional Holdings

We saw a decline in institutional ownership recently. With the share price getting beaten down as earning missed expectations. For institutional ownership to increase, we will need to see the company start to be consistently profitable. As such, share price of Palantir is subject to volatility in retail trading.

https://fintel.io/so/us/pltr

Plans

Fundamentals are still alright, except that I need to keep a lookout on the government revenue, and if commercial revenue is able to cover the decline in government revenue. Management has stated that we will see an increase in government revenue in H2 2022. SBC has been decreasing steadily too.

By using the bear case scenario, myDCFshows an implied PV of $8 which is around the current share price. This is a good price to lower my cost basis.

I will continue to DCA to bring my cost basis down and to accumulate more here.

Disclaimer: I have positions in Palantir as of the date of posting this article. Do note this article is not a signal to buy or sell and should be treated for entertainment purposes only. I was probably drunk when writing this article. Please do your own due diligence when investing. This is NOT financial advice.