Palantir ( $Palantir Technologies Inc.(PLTR)$ )has jumped by more than 32% since reportingtheir Fiscal 2022 and Q4 earnings. This is because for the first time in Palantir's history, they are GAAP profitable for the quarter than ended December 31, 2022.
Palantir Income Statement Fiscal 2022 & Q4
Revenue for Q4 2022 came in at $508.6 million,an increase of 17.5% compared to Q4 2021. Gross profit for Q4 2022 was $404.3 million, an increase of 17.1% compared to Q4 2021. For the full year, their revenue was $1.9 billion, representing an increase of 23.6% from their 2021 full year revenue of $1.5 billion.
After deducting operating expenses, their lossfrom operations for the quarter was $17.8 million, which significantly improved from Q4 2021operating loss of $58.9 million.
So how did we get to net profitability? They had interest income of $12.75 million for the quarter, which is not a surprise because they have a strong cash balance of $2.59 billion in their balance sheets. Thank Jerome Powell and the Fed for raising interest rates throughout 2022!
Also they recorded other income of $44.6 million, which was a gain from their acquisition of their Palantir Japan joint venture. As such theywere profitable for the quarter.
Dave Glazer, CFO during earnings call
Alex Karp and profitability
CEO Alex Karp couldn't be much happier, considering the number of times he used the word 'profitability' in the opening segment of the earnings call. He mentioned that the journalists all felt that Palantir wouldn't be able to achieve profitability until 2027 perhaps.
Profitability is the word in Alex Karp's opening remarks
Can Palantir achieve 30% revenue growth as promised?
At the end of their Q4 2021 earnings remarks, Palantir reinforced their 2020 earnings call that they would grow their annual revenue of 30% or more through 2025. If one were to look back at their Q4 2021 accompanying remarks,the following is seen.
Q4 2021 accompanying remarks
Palantir Annual Revenues till 2022
Essientially, for 2022, their revenue growth fellshort of their guidance of 30%, where they achieved 23.6% revenue growth. In their guidance for the full year 2023, they expect revenue of between $2.18 billion to $2.23 billion, which represents an increase of 14.4% to 17.0% from2022's full year revenue of $1.90 billion.
As such, the company now finds 30% hard to meet given the current macroeconomic conditions.
Stock based compensation and dilution
Palantir's diluted shares outstanding increasing every quarter
The next thing to look at as an investor is the constant increasing of outstanding shares. Essientially shareholders value are diluted each time they increase the outstanding shares. Stock based compensation is still considerably high, for the full year 2022, $564 million was in stock based compensation. That represents 29.6% of their total revenue of $1.90 billion for full year 2022.
Stock based compensation FY2018 to FY2022
Are investors over paying?
Palantir Valuation C- (Seeking Alpha)
Palantir currently carries a C- in terms of valuation grade. As their full year operating income is still loss making, the useful numbers to look at are Price/Sales and EV/EBITDA. Currently they have a forward Price/Sales of 8.71, which is much higher than the sector median of 2.96. Forward EV/EBITDA is at 32.6, comparedto sector median of 13.2.
To buy or not to buy?
The current financials and projected growth rates are not very attractive based on current valuations. As a speculative growth stock, Palantir could potentially become a multi bagger, where your investment could potentially 5X or 10X of your initial investment capital. BUT that isonly when it proves that it's Operating Incomecan become profitable and continue to grow revenues and operating income at rates of 25%-30%.
It is highly recommended not to FOMO at this point given that the stock has surged. Also donot risk more than 1% of your portfolio size onsuch a speculative stock, and be totally prepared for 100% capital loss.
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