Hiding inside Palantir’s skyrocketing quarter is a foreboding signal
Palantir delivered such a huge third-quarter earnings report on Monday that its press release even bragged that the numbers were “crushing consensus expectations.” Yet, retail investors were lukewarm on the company on Tuesday, with the stock trading slightly down. That’s because Palantir’s enterprise sales, its big growth area, showed signs of slowing. First, the good […]
Palantir's third-quarter earnings report on Monday was a big success, with the company's press release claiming the numbers "crushed consensus expectations." However, retail investors were less enthusiastic on Tuesday, with the stock price slightly declining. The reason for this mixed response lies in Palantir's enterprise sales, a key growth area, which showed signs of deceleration.
On the positive side, Palantir's revenue grew by 96% year-over-year, reaching $2.31 billion, surpassing the $2 billion mark for the first time. The company's revenue also increased by 20% from the previous quarter, beating analysts' expectations of $2.18 billion. Adjusted earnings per share stood at $0.44, surpassing analysts' expectations of $0.41. The company even raised its revenue guidance for the full year, indicating confidence in future performance.
A significant development was Palantir's U.S. commercial revenue surpassing U.S. government revenue for the first time. The company reported $984 million in commercial contracts, up 148% from the year-ago quarter, compared to $953 million in U.S. government revenue. The growth was driven by enterprises adopting Palantir's AI software, which enables secure AI model training without sharing data or business processes with external AI labs.
Palantir has long provided customizable software engineering services, known as "forward-deployed" software engineering.
Despite the positive outlook, there are some red flags. Palantir revealed that even as enterprises are moving swiftly to adopt AI software, they are often signing short-term trials. Palantir CEO Alex Karp expressed confidence during the quarterly conference call, stating that they are witnessing rapid interactions and deployments, with contract durations being shorter but with the potential for significant expansion.
Karp likened the influx of corporate customers to transitioning from being a prominent figure in the physics department to becoming the captain of a football team.
However, the numbers do not yet confirm Palantir's long-term success. While the company secured a total contract value of $1.46 billion from U.S. enterprises in the quarter, it was a decline from the previous quarter's record-setting $2.13 billion. This suggests decelerating sales, at least for the last quarter. The forthcoming earnings report will provide further insights into whether Palantir has solidified its position as a rising U.S. enterprise AI provider.
Historically, many enterprises tend to finalize their major tech purchases in the last quarter of the year. Karp and his team are confident, having increased their revenue guidance for U.S. commercial revenue to exceed $3.559 billion, representing at least a 143% growth rate.
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