Palantir Revenue Jumps 96% but Shares Fall as New Contract Growth Slows
Palantir Technologies reported third-quarter results after the closing bell on Monday that beat Wall Street expectations, then watched its shares fall. Revenue rose 96 percent from a year earlier to $2.313 billion, above the $2.18 billion analysts expected, and adjusted earnings per share came in at 44 cents, above the 41 cents expected. Net income more than doubled to $1.128 billion from $475.6 million a year earlier. The stock fell 3.13 percent in the regular session to $178.34 and slipped further in after-hours trading.
Palantir sells data-analysis software to governments and companies. It started with defense and intelligence agencies and now sells a platform that helps companies put artificial intelligence to work on their own data. Reading its results takes two numbers at once: how much revenue came in, and how many new contracts were signed that will become revenue later. This quarter, the two moved in opposite directions.
Commercial revenue passes government revenue for the first time
Revenue from United States commercial customers rose 148 percent to $984 million, passing revenue from the United States government, which rose 96 percent to $953 million. It was the first time the commercial business was bigger than the government business. Total revenue from the United States rose 119 percent to $1.937 billion, and it was the first quarter in which total revenue passed $2 billion.
Profitability kept pace. Adjusted operating income, which excludes stock-based compensation and other one-time items, was $1.427 billion, a margin of 62 percent. Operating income under standard accounting rules was $1.085 billion, a margin of 47 percent, up from 33 percent a year earlier. Adjusted free cash flow, the cash left after operating expenses and equipment spending, was $1.216 billion, or 53 percent of revenue.
New contracts grew just 6 percent
The weak spot was new business. Total contract value, the full value of contracts signed in the quarter, was $2.92 billion, up just 6 percent from a year earlier. That is a sharp contrast with revenue growth of 96 percent.
United States commercial contract value was $1.46 billion, up 11 percent from a year earlier, after growing 153 percent in the second quarter, William Blair analyst Louie DiPalma noted. Remaining deal value, contracts that have been signed but not yet recorded as revenue, was $6.517 billion in the United States commercial business, up 79 percent from a year earlier. But it rose only 4 percent from the prior quarter, while United States commercial revenue rose 29 percent in the same period, the Motley Fool reported. In other words, Palantir turned older deals into revenue faster than it signed new ones.
The share reaction shifted through the evening. Dow Jones Newswires reported the stock up 1.4 percent at $180.77 shortly after the release. It later turned lower, and Coinpaper reported shares down nearly 3.8 percent in after-hours trading at $171.52. Ryan Lee, senior vice president of product and strategy at Direxion, said Palantir “came into earnings priced to perfection, hence the pullback off the beat,” adding that elevated expectations were the main factor holding back the stock.
Company raises its outlook
The company raised its forecast. It expects fourth-quarter revenue of $2.649 billion to $2.653 billion, above the roughly $2.46 billion analysts expected, and full-year revenue of $8.530 billion to $8.534 billion, up from $8.150 billion to $8.158 billion in August. That implies growth of about 91 percent for the year. It also raised its outlook for United States commercial revenue to more than $3.559 billion, adjusted operating income to $5.245 billion to $5.249 billion, and adjusted free cash flow to $4.8 billion to $5.0 billion.
Chief Executive Alex Karp told CNBC, “I don’t believe anyone’s had consistent results like this in the history of software AI, ever.” Guidance is a company’s own forecast of its results, and investors reprice the stock on whether that forecast looks achievable.
The results landed as artificial intelligence stocks wobbled. The Nasdaq Composite fell 1.07 percent on Monday and has fallen more than 5 percent in October, as investors question whether spending on artificial intelligence infrastructure is turning into cash quickly enough.
The next test comes in Tuesday’s regular session, when investors decide whether the after-hours drop holds, and in how analysts read the slowdown in contract signings. Advanced Micro Devices also reports after the closing bell on Tuesday.
