What's So Bad About Palantir's Q1 Earnings Report?

Technology

Published: May 11, 2021 9:37 am

Since coming public in October of last year, shares of Palantir Technologies Inc. (NYSE: PLTR) have nearly doubled in value, closing up nearly 95% on Monday afternoon. The stock tumbled by more than 10% in Tuesday’s premarket trading, following the company’s first-quarter earnings report.

The company reported adjusted, diluted earnings per share (EPS) of $0.04 on revenue of $341.23 million. EPS came in at the consensus estimate and revenue beat expectations by $9 million. Why the plunging share price?

Investor reaction may be due in part to overall disenchantment with the tech sector. The Nasdaq traded down about 1.6% in Tuesday’s premarket. After a booming 2020, tech stocks are up just 3.8% so far in 2021, about 67% below the S&P 500 index.

Another reason for the drop may be investors’ belief that Palantir stock, currently trading at 115.6 times expected fiscal 2021 EPS, is overvalued. The stock also trades at a multiple of 24.3 measured on enterprise value-to-expected 2021 revenue. That’s more than three times the software industry average of just over seven times and nearly five times the tech sector’s multiple of 5.1 times.

In its outlook for the second quarter, Palantir said it expects revenue to rise by 43% year over year to $360 million, with an operating margin of 23%. For the full year, Palantir expects adjusted free cash flow of more than $150 million. Over a longer term, the company expects annual revenue growth of 30% or more for 2021 through 2025.

Sequentially, revenue rose by about 5.9% and adjusted EPS slipped by two cents per share. On a GAAP basis, the loss per share improved from eight cents to seven cents. That hardly fits the profile of a fast-growth company, and that’s probably what was weighing on the stock Tuesday.

Consensus estimates for the June quarter call for adjusted EPS of $0.03 on sales of $344.31 million. For the full year, analysts are looking for EPS of $0.16 on sales of $1.47 billion. Those estimates represent a pretty low bar.

Palantir’s stock traded at $17.85 just after Tuesday’s open, down about 3.3% compared with Monday’s closing price of $18.47. The stock’s post-IPO range is $8.90 to $45.00, and the consensus price target on the shares is $26.33. The average daily trading volume is 81.2 million shares.