Palantir Q3 2022 preview: Cheaper, but not cheap enough

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miguel saw

In the coming days, the management team of Palantir Technologies (New York Stock Exchange:PLTR), a company focused on providing big data analytics and services, is expected to report financial results covering the third quarter of its fiscal year 2022. Latest months they have not been particularly kind to investors, as the company’s shares have fallen sharply. In fact, while the S&P 500 is down significantly, shares of Palantir Technologies are down 52.6% since the start of this year. This comes even at a time when the company continues to expand from a revenue perspective. But at the end of the day, that just goes to show the risks involved in investing in growth. Heading into the third quarter earnings release, there are a few things for investors to keep in mind. These are items that will almost certainly be discussed by management that will go a long way in determining the overall health and prospects of the company going forward.

Beware of expectations

First of all, we need to discuss what analysts are currently anticipating. Generally speaking, I don’t much care what analysts expect or if those expectations are met. But when it comes to growth investing, it’s vital to meet or exceed expectations. Even if a company reports strong year-over-year growth in both earnings and profits, falling short of what analysts anticipated could send the stock down. Consider how the market reacted to Palantir Technologies when reported second quarter results. The company’s revenue had risen 25.9% year over year, beating even analyst expectations by $1.3 million. Unfortunately, earnings per share was lost by just $0.04. That sent shares down more than 14% for the day.

historical finances

Author – SEC EDGAR Data

Given the company’s status as a growth game, it’s important that management at least live up to expectations. Currently, the market forecasts revenue of $474.96 million. If this comes to fruition, it would translate to a 21.1% year-over-year growth rate compared to $392.1 million generated in the third quarter of 2021. The biggest risk to investors as I see it involves trading commercials of the firm. You see, management is currently driving rapid growth for the company for years to come. And a big part of that is a bet that the commercial space will find demand for the company’s offerings. In recent years, the company has done well on this front. In the second quarter of 2021, for example, 33.9% of its revenue came from retail space. This number shot up to 41.5% in the second quarter of the year. In the first six months of 2022, 43% of revenue came from retail space, up from 34.9% in the first half of 2021.

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Income

Author – SEC EDGAR Data

Of course, growth in this space is likely to be very difficult. You see, in the commercial market, the company ended the second quarter with only 203 clients. That’s significantly higher than the 79 customers reported a year earlier. This fueled the company’s total business revenue growth of 46% year-over-year, from $144 million to $210 million. And the average revenue for the last 12 months for the top 20 clients combined was $46 million. That was up from the $39 million experienced just a year earlier. This high dollar amount is quite revealing because it indicates how small the pool of viable prospects is that can afford your offers.

customer data

Palantir Technologies

Current market conditions make it unsure if commercial space can achieve significant growth. This is different from the company’s government clients who largely make up for commercial space during tough economic times. So any kind of weakness will surely be on this side of the equation. As for those wondering what kind of use cases there would be for the Palantir Technologies platform, consider two that I uncovered. A clientutility giant PG&E (PCG), uses the Palantir Technologies platform to help with the operation of their network so they can perform preventative maintenance and implement enhanced power line security configurations to help protect high-risk portions of the network. and in another caseinvolving Swiss Re, the company can connect all the organizations under that company’s umbrella to a central platform that helps aggregate, organize and analyze the data collected in order to provide valuable insights such as those associated with climate risk. specific. impacts on insurance claims.

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Outside of the earnings picture, investors should also pay attention to profitability. Analysts currently anticipate a loss per share of $0.05. On an adjusted basis, this would translate to earnings per share of $0.02. To put this in perspective, during the third quarter of last year, the company lost $0.05 per share, totaling $102.1 million in total. But on an adjusted basis, the company generated a profit of $82.1 million. Obviously, investors should also pay attention to other performance metrics. For context, in the third quarter of last year, the company generated operating cash flow of $100.8 million. On an adjusted basis, this figure was $104.5 million. And finally, the EBITDA for that moment was $119.2 million.

Please note the feedback

In all the articles I have written about Palantir Technologies, I felt that the long-term outlook for the company was good. Having said that, my big complaint was that the shares seemed expensive. Well, since I last wrote about the company in August of this year, calling it a ‘sell’, the stock is down 6.6%. That compares with the 5.4% loss experienced by the S&P 500. This has certainly made stocks cheaper. Using the same methodology I used in my last article on the company, I recalculated how expensive the stock is now that it has fallen even further. Naturally, this assumes that management does not provide any data that requires a decrease in guidance for this year or move forward as they did when they reported the results for the second quarter of the year.

multiples trading

Author – SEC EDGAR Data

As you can see, stocks still look pretty expensive for this year. These data can be seen in the table above. There is already considerable pessimism in the market regarding the company’s ability to achieve its growth goals. This comes after management removed all discussion of reaching $4.5 billion in sales by 2025.

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Put off

Based on the data provided, it seems to me that analysts are currently expecting a fairly strong performance on the top line this quarter. Whether or not the company can deliver is anyone’s guess. In the event that management does not meet expectations in terms of outperformance or underperformance, we could see some downside for investors. Having said that, stocks are definitely getting cheaper and a significant downside from here seems unlikely as management has no major guidance going forward. All things considered, I am becoming more and more interested in Palantir Technologies from an investment perspective. But the stock still warrants a soft ‘sell’ until we see what the company can offer in this next earnings release.

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