Why Did Palantir Stock Lose 21% on Monday?

Palantir Technologies Inc. (NYSE: PLTR) has delivered weaker-than-expected earnings for the first quarter of 2022, as its bottom line missed the consensus estimate by 50%. However, revenues in the quarter surpassed the consensus estimate by 0.6%.

Earnings miss and weak projections for 2022 dampened market sentiments for the stock. Shares of this $15.3-billion company declined 21.3% to close at $7.46 on Monday.

Based in Denver, CO, the company provides software for the analysis of big data in the non-profit sector, private enterprises, and public institutions.

Financial Highlights

In the quarter, Palantir’s adjusted earnings stood at $0.02 per share, below the consensus estimate of $0.04 per share. Also, the bottom line fell 50% short of the year-ago tally of $0.04 per share.

Revenues at $446 million were above the consensus estimate of $443.4 million. On a year-over-year basis, the top line expanded 30.8% on the back of a 54% jump in Commercial revenues and 16% growth in Government revenues. Also, the customer count rose 86% from the first quarter of 2021.

The cost of revenue increased 27.4% year-over-year, while total operating expenses grew 2.7% from the year-ago tally. Adjusted earnings before interest, tax, depreciation, and amortization were $121.7 million, up 1.6% year-over-year. The adjusted EBITDA margin was 27.3%, down 780 points (bps) from the year-ago quarter.

The adjusted operating income in the quarter inched up 0.7% to $117.4 million, while the margin plummeted 800 bps to 26%.

Balance Sheet and Cash Flow

Exiting the first quarter, Palantir had cash and cash equivalents of $2,269.4 million, down 0.9% from 2021-end. Total liabilities were $954.4 million, down 0.2% from the end of 2021.

In the quarter, Palantir generated net cash of $35.5 million from its operating activities, down 69.6% year-over-year. Capital expenditures at $15.2 million were up compared with the year-ago tally of $0.7 million. Adjusted free cash flow decreased 80.3% to $29.8 million.

Projections

For the second quarter of 2022, Palantir projects revenues of $470 million and an adjusted operating margin of 20%. The top-line guidance is short of the consensus estimate of $483.8 million.

Further, the company has maintained its adjusted operating margin expectation of 27% for 2022.

Analysts’ Take

On May 9, Brian White of Monness maintained a Buy rating on PLTR with a price target of $16 (114.48% upside potential).

Another analyst, Rishi Jaluria of RBC Capital downgraded Palantir’s rating to Sell from a Hold while lowering the price target to $6 (19.57% downside potential) from $12.

Overall, the company has a Hold consensus rating based on two Buys, five Holds, and three Sells. PLTR’s average price forecast of $12.06 suggests 61.66% upside potential from current levels. Shares of Palantir have declined 59.6% over the past year.

Hedge Fund Activities

Per the TipRanks Hedge Fund Trading Activity tool, the confidence signal on Palantir is Very Negative. In the last quarter, hedge funds decreased their exposure to PLTR by 2.4 million shares.

Conclusion

Despite an improvement in the top line, Palantir has failed to report growth in earnings on a year-over-year basis. Its high exposure to cost-related headwinds might continue to adversely impact margins and profitability in the quarters ahead.

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