Palantir Technologies reported better-than-expected fourth quarter financial results on Monday, driven by strong growth in its commercial business. The data analytics software company saw its shares surge over 15% in early trading Tuesday on the upbeat report.
Commercial Business Fuels Over 30% Revenue Growth
Palantir generated quarterly revenues of $508.6 million, up over 31% compared to $387.5 million in the year-ago period and exceeding Wall Street estimates of around $500 million.
The company’s commercial customer segment was the primary growth driver, with commercial revenue jumping 46% year-over-year to $297 million. Commercial bookings also saw robust gains, more than doubling from a year earlier to $509 million in the fourth quarter.
Palantir said it added 33 net new commercial customers in the period. New deal signings included a multi-year, $44 million contract with BP for Palantir’s Foundry data platform.
| Q4 2022 Key Metrics | Year-Over-Year Change |
|---|---|
| Total Revenue | +31% |
| Commercial Revenue | +46% |
| Commercial Customers | +33 net new |
| Commercial Bookings | +121% |
“Our results this quarter demonstrate that enterprises across industries are seeing the value in partnering with Palantir to leverage data and AI,” said CEO Alex Karp in the company’s earnings release.
Meanwhile, Palantir’s government business revenue rose 15% year-over-year to $211 million in Q4. U.S. governmental revenue expanded 16%, while revenue from non-U.S. governments climbed 12%.
Bottom Line Swings to Profit on Margin Expansion
In addition to the top-line beat, Palantir delivered a surprise profit in the fourth quarter. The company earned adjusted earnings per share of $0.04, compared to a loss of $0.01 per share in the prior-year period.
Palantir attributed its swing to profitability to strong operating leverage. The company’s adjusted operating margin expanded significantly from Q4 2021, rising 11 percentage points to 29%.
On a GAAP basis, Palantir earned $0.01 per share. This marked the data analytics firm’s third consecutive quarter of GAAP profitability.
“We have reached an inflection point where revenue growth and margin expansion reinforce one another,” said Palantir CFO David Glazer. “This dynamic, paired with disciplined investing for future growth, will allow us to drive profitability while continuing to capture market share.”
Demand Outlook Remains Strong
Heading into 2023, Palantir issued full-year guidance calling for adjusted operating margin of 31% at the midpoint. This implies further profitability gains even as the company continues investing aggressively for growth.
Management sees revenue of $2.18 billion to $2.23 billion this year. The outlook equates to about 23% annual growth at the guidance midpoint.
Palantir expects commercial revenue to increase by 29% year-over-year in 2023 based on its revenue guidance range. The company also called for commercial customer count to rise by about 30% this year.
“Heading into 2023, demand for our software has never been stronger,” said CEO Karp. “We see opportunities to help organizations across sectors including energy, manufacturing, aviation, healthcare, and financial services.”
Analysts Largely Positive on Quarter But Concerns Persist
Wall Street analysts reacted positively to Palantir’s fourth quarter beat and strong growth metrics. Several firms raised their price targets on the stock, including Credit Suisse boosting its target to $11 from $9 per share.
“The key takeaway from the print revolved around stronger than expected results in the company’s commercial segment,” wrote Credit Suisse analyst Phil Winslow. He expects Palantir’s commercial momentum to continue driving upside.
Morgan Stanley analyst Keith Weiss was also encouraged by the results. “Palantir delivered very strong 4Q results with upside on both the top and bottom line,” he commented. Weiss upped his price target on the stock from $12 to $13 per share.
However, not all analysts were ready to jump fully on board the bull case. Citigroup’s Tyler Radke kept his Sell rating and $5 price target on Palantir despite increasing his 2023 revenue estimate.
“We continue to have concerns around the volatility and lower visibility of the government business, longer-term margin potential for commercial, and still elevated stock-based comp,” noted Radke in his post-earnings note.
Stock Price Jumps to 8-Month High
Shares of Palantir shot up over 18% to $9.24 on Tuesday morning, hitting their highest level since June 2022. The stock has rebounded sharply so far in 2023 after plummeting over 60% last year.
Palantir went public via direct listing in September 2020. The data analytics firm was co-founded in 2003 by CEO Alex Karp along with billionaire tech investor Peter Thiel.
While Palantir has posted steady revenue growth, the company has faced doubts from some investors and analysts around its long-term profit outlook. Prior to its recent swing to profitability, Palantir had posted consistent bottom-line losses since its public market debut.
If Palantir can sustain its commercial momentum and margin expansion, it could help shift more positive sentiment around its business model and stock valuation. But unpredictable government revenue and ongoing competition in enterprise AI and analytics present lingering risks.
Outlook: Can Commercial Growth be Sustained?
Palantir’s blowout fourth quarter report highlighted the increasing value that commercial enterprises see in its data analytics solutions. With demand running high, Palantir raised its guidance for over 25% total revenue growth this year.
Continued commercial adoption and expansion of Palantir’s Foundry platform will be critical for the company to drive durable, profitable growth. But the competitive landscape remains fierce, and converting proof-of-concept pilots into long-lasting customer relationships could pose challenges.
Rival data analytics vendors include incumbents like IBM, SAS, Oracle, and legacy consulting firms. Upstarts also abound in the red-hot AI software space that Palantir competes in. Landing larger commercial deals likely requires displacing entrenched competitors or changing stubborn internal mindsets around data infrastructure transformation.
If Palantir’s existing commercial clients renew contracts and expand utilization based on proven value delivered by Foundry, it would validate the stickiness of the company’s offerings. This recurring revenue stream would also help offset uncertainty in the government segment.
But the onus is on Palantir to keep dazzling private sector customers with measurable ROI if it hopes to sustain momentum. Profitability is within reach, but consistent execution unlocking Foundry’s purported potential will determine whether today’s optimism has staying power.
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