*Critical* Palantir Earnings LIVE

Key Concepts

• Palantir Technologies (PLTR): A software company specializing in big data analytics and AI platforms.
• Earnings Report: A financial statement released by a company detailing its performance over a specific period.
• Adjusted EPS (Earnings Per Share): A non-GAAP measure of a company's profit allocated to each outstanding share of common stock, often excluding certain expenses like stock-based compensation.
• GAAP EPS: Earnings Per Share calculated according to Generally Accepted Accounting Principles.
• EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A measure of a company's operating performance.
• Revenue: The total income generated by the sale of goods or services.
• PEG Ratio (Price/Earnings to Growth Ratio): A valuation metric that compares a company's P/E ratio to its expected earnings growth rate.
• Stock-Based Compensation: Compensation provided to employees in the form of stock or stock options.
• Operating Leverage: The degree to which a company's costs are fixed versus variable. Higher operating leverage means a small change in revenue can lead to a larger change in operating income.
• Ontology: In the context of Palantir, a system for organizing and understanding complex data.
• Commercial Revenue: Revenue generated from sales to commercial clients.
• US Revenue: Revenue generated from sales within the United States.
• RPO (Remaining Performance Obligations): The total value of contracted revenue that has not yet been recognized.
• Balance Sheet: A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time.
• Cash Flow Statement: A financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents.
• Operating Margin: A profitability ratio that measures how much profit is generated from a company's core business operations.

Palantir Earnings Analysis and Market Commentary

This analysis focuses on Palantir Technologies' (PLTR) recent earnings report and its implications for the company and the broader tech and AI sectors. The discussion highlights the company's strong performance, particularly in commercial revenue, and its potential for future growth, while also acknowledging its high valuation.

Palantir's Dominant Performance and Market Expectations

The video begins by noting the "swoosh" recovery in Palantir's stock, indicating a strong upward trend. The speaker expresses excitement for Palantir's earnings, which are imminent. A key point of discussion is Palantir's consistent beat on adjusted EPS. This is attributed, in part, to the company adding back stock-based compensation to its expenses, a common practice that boosts adjusted EPS. The speaker notes that Palantir has beaten adjusted EPS expectations seven out of eight times.

The market anticipates higher volatility for Palantir, with expected volatility around 8.9%. The speaker's personal expectation for adjusted EPS is 16.8 cents, and they predict a beat for the eighth consecutive time. The market is looking for an 8.9% movement in the stock following the earnings release.

Palantir's Position in the AI Landscape

Palantir is recognized as one of the early pioneers in "true or real AI," alongside Tesla. The speaker recalls discussions from March 2023, identifying both companies as leading AI plays that integrated AI from their inception, with Tesla focusing on "vision AI" and Palantir on "big data AI." This early adoption has contributed to the company's significant growth trajectory.

Valuation Concerns and Key Financial Metrics

Despite the strong performance, the high valuations of AI-focused companies are a concern. Tesla's PEG ratio is noted as being over six, while Palantir's is currently over eight. The speaker later refines Palantir's PEG ratio to 8.57 after its recent run.

The speaker provides specific expectations for Palantir's earnings report:

• Adjusted EPS: Expected at 16.8 cents, with a history of beating expectations eight out of eight times.
• GAAP EPS: Expected at 10.9 cents, also with a history of beating expectations eight out of eight times.
• Revenue: Expected to reach $1.09 billion, with a history of beating expectations eight out of eight times.
• Net Income: Expected at $443.72 million, also with a history of beating expectations eight out of eight times.

The market closing bell rings, with Palantir closing up 3.45%.

Bitcoin and Market Rotation

The discussion briefly touches on Bitcoin trading down to $1066, with the speaker suggesting this is due to money rotating into the tech sector. Michael Saylor's recent disclosure of MicroStrategy buying $43 million of Bitcoin at an average of $114,000 per Bitcoin is mentioned, along with Peter Schiff's typical critical response.

Nvidia and Tesla Performance

Nvidia showed impressive moves, closing up 2% after being as high as 4.2% intraday. Tesla also experienced significant gains, with most of its rally occurring at the beginning of the day, driven by anticipation of a vote passing that would reinstate Elon Musk's pay package. This event is seen as potentially acting as an earnings beat for Tesla, but also a potential near-term top for the stock.

Pre-Earnings Activity and AI Enthusiasm

In the minutes leading up to Palantir's earnings release, there was observed buying activity, with the stock increasing by 50 basis points. Bitcoin also saw a slight pump. The speaker questions if this indicates leaked information.

The speaker addresses the prevailing sentiment that big corporations are running out of investor enthusiasm for AI. They disagree, believing that AI adoption is just beginning. However, they acknowledge that current valuations may not be entirely justified, with a lot of enthusiasm being priced in.

The core value proposition of Palantir is its ability to help large corporations organize vast amounts of unorganized data, often residing in spreadsheets, and turn it into actionable insights that can drive revenue. The potential consequence of this efficiency gain is job reduction.

Palantir's Earnings Beat and Outlook Boost

The earnings report is released, and the initial results are highly positive:

• Adjusted EPS: Beat at 21 cents versus the expected 17 cents.
• Revenue: Beat expectations.
• Outlook: Palantir boosts its outlook.
• The stock immediately jumps 6%.

Specific Q4 results and beats are detailed:

• Q4 Adjusted Revenue: $1.33 billion versus the expected $1.19 billion.
• Q3 Adjusted EBITDA: Beat by nearly $100 million, at 600 million versus 500 million, a 20% beat.
• Q3 Topline Revenue: Beat by 8.2%.
• Fiscal Year Revenue Forecast: Raised to $4.4 billion from $4.15 billion, a 6% increase.
• Commercial Revenue: Exceeded $1.4 billion. This is significant as the previous quarter was the first to surpass $1 billion in revenue.

The speaker emphasizes that this quarterly growth is continuing and is positive for Palantir, the AI industry, and software as a whole.

Deep Dive into Palantir's Financials and Growth Drivers

The speaker delves into the earnings release, highlighting key aspects:

• Commercial Revenue Growth: Palantir doubled its commercial revenue year-over-year, a critical metric for demonstrating AI adoption by corporations.
• Sales Pitch: Palantir's product is positioned not as an expense, but as an investment to save money, with the goal of saving clients significantly more than they spend.
• EPS Growth: The average EPS growth over the next four years is projected by Wall Street to be 37.1%. However, the speaker calculates that the Q3 to Q4 revenue growth implies 50% revenue growth on an annualized basis. This suggests that Wall Street might be underestimating Palantir's growth potential.
• PEG Ratio Re-evaluation: With a projected 50% growth rate, the PEG ratio remains high. Even adjusting to a 45% growth rate, the PEG is still around seven, indicating the stock is expensive. However, the speaker notes that the earnings themselves are very good, with EPS potentially growing at 50% annualized.
• Operating Leverage: The company demonstrates strong operating leverage. While revenue growth is substantial (e.g., 103% year-over-year for operating income), expenses like sales and marketing are growing at a slower rate (24%). This leads to improved operating margins, which increased by 4.8 percentage points year-over-year, from 22% to 26.8%. This efficiency allows EPS to grow faster than revenue.
• Balance Sheet Strength: Palantir's balance sheet is described as "fortress." Current liabilities are around $864 million, while cash and marketable securities alone are approximately $6.4 billion, with an additional $1 billion in receivables. This strong liquidity makes the company highly resilient.
• Cash Flow: Operating cash flow is described as "insane," with net cash of almost a billion dollars in six months. Stock buybacks are occurring, partly to offset stock-based compensation.
• Deal Closures: Palantir closed 157 deals of at least $1 million and 66 deals at $5 million. This demonstrates significant traction with large enterprise clients.

Comparison of Q2 and Q3 Results

The speaker initially reviews Q2 results, which were also strong. However, they encounter difficulty accessing the official Q3 earnings release, being directed to a presentation deck instead. After obtaining the 8-K filing, they compare Q3 to Q2:

• Revenue Growth: 62% year-over-year revenue growth in Q3 (from $725 million to $1181 million).
• Sales and Marketing Growth: Increased by 31% quarter-over-quarter, indicating continued investment.
• R&D Growth: Around 16%.
• G&A Growth: Only 16%, showing significant scaling efficiency as revenue grows much faster.
• Net Income: $476 million, a 3x increase year-over-year.
• EPS Growth: Up over 3.3x year-over-year.
• Balance Sheet: Remains exceptionally strong, with current liabilities of $864 million against $6.4 billion in cash and marketables.
• Commercial Revenue Growth: 77% year-over-year.
• Deal Volume: 204 deals worth over $1 million (up from 160 in Q2) and 91 deals worth $5 million.

Fair Value Assessment and Future Outlook

The speaker attempts to calculate a fair value for Palantir's stock. Even with an aggressive assumption of 52% average EPS growth over the next four years (higher than Wall Street's 37.1%), the PEG ratio remains at six. Using a forward earnings estimate of 65 cents and a multiplier of 2.67 times the 52% growth rate, the fair value is calculated to be around $90. This is considered "offensively low" and suggests that while the stock is expensive, the upward momentum is strong, and a rapid downturn could occur if that momentum slows.

The speaker notes that the stock is currently flat, which might indicate profit-taking or a pause before further movement.

Conclusion

Palantir delivered a phenomenal earnings report with significant beats on revenue and EPS, a boosted outlook, and impressive growth in commercial revenue. The company demonstrates strong operating leverage, a fortress balance sheet, and increasing deal volume. While the stock remains expensively valued, the underlying business performance is exceptionally strong, driven by the increasing adoption of AI and big data solutions by corporations. The speaker concludes that there is "little not to like" about the company's financial performance.