Palantir Turns Profitable, Crossing an Important Milestone to Finish 2022

Palantir Stock at a Glance

• Current Morningstar Fair Value Estimate: $9
• Palantir Stock Star Rating: 3 stars
• Economic Moat Rating: Narrow
• Moat Trend Rating: Positive

Palantir Earnings Update

We are raising our fair value estimate for Palantir PLTR to $9 from $8 as we account for the time value of money following our model roll. The firm fourth-quarter financial results came largely in line with our prior estimates and the firm’s guidance for fiscal 2023 was marginally below our prior forecasts. We continue to have a positive outlook on Palantir’s ability to expand sales from both governmental and commercial clients. We also believe that Palantir’s platforms stand to benefit as firms increasingly leverage big data to deliver business outcomes. With shares up around 15% after hours, we believe the market has calibrated its valuation to reflect the firm’s strong fundamentals and we view the firm’s shares as fairly valued.

Palantir’s top line clocked in at $509 million, up 18% year over year, with double-digit growth in both the government and commercial verticals. Macro pressures continue to mount for Palantir, however, with remaining performance obligations, or RPOs, and billings, both forward-looking indicators, showing a substantial slowdown. Macro pressures affected net retention which slipped 400 basis points sequentially to 115% for the quarter. Despite the near-term weakness indicated by some of these forward-looking metrics, we remain confident of Palantir’s long-term opportunity.

On the profitability front, Palantir reported a positive net income for the first time with GAAP EPS clocking in at $0.01, above our estimates. There has been increasing pressure on some of the high-growth tech companies to moderate their operating expenditures as investors continue to emphasize profitability in a tough macro environment. To that end, Palantir has also turned back the dial on some of its operating spend, thereby materially increasing its profitability.