There was a change in tone on the PLTR 2Q22 EPS call. As usual, the COO breathlessly pointed out the wondrous and amazing elements of Palantir's results, points that make us laugh and rejoice each quarter as we subtract wonderment from the rest and math out just how stinky the pile must be to avoid a callout. But this time the CEO audibly and repeatedly pounded his first on the table in frustration with results. It was especially ironic for PLTR to whiff on the government bookings side after promising an inflection in government billings in 2022, and using open letters to European governments at the outset of a war to remind Palantir investors that PLTR would war profiteer. We still think PLTR is ultimately worth something in the $5-6 range (~$11B EV) and we get there mainly on ~25-35x out-year FCF. (Note, while SBC is a nice add-back to FCF as fair game in GAAP OCF, we aren't fans of PLTR's adjustment to FCF in adding back the taxes paid on employee stock options. You can keep the SBC but the other part is a reach.)
Things to like about 2Q22 results:
- new customers
- some honest disappointment from the CEO rather than the usual magic tricks, or fancy boots crunching snow in Swiss Alps
- cash net income stable q-q, up y/y (although % margin down 300bp y/y)
Things not to like:
- barely beating decelerated revenue guidance
- guiding 3Q below Street by -6% on revenue and -65% on OP
- billings growth pancake from 35% y/y in 1Q to 4% y/y in 2Q
- total deal value pancake to +3% y/y *
- no disclosure on SPAC revenue and remaining deal value making it hard to evaluate Commercial revenue and customer growth
- large change in equity stake value in the Q undiscussed
- 1H22 OCF lower than 1H21
* Recall our thesis on PLTR had long been that major $1B+ bookings wins in 2015, 2018, and 2020, would be unlikely to repeat due to the increasingly obvious limitations with their product especially in comparison to the changing competitive landscape. The ongoing shift to big data and ML/AI is not well suited for PLTR's product, and case in point, the company came to market promising to cruise past IaaS competition, Snowflake, and others, and now hopes to beat out AYX for deals; a much reduced value component of the tech stack and layer. Once we understood the product/market fit issues, the rest was math that big bookings deals waterfall into revenue initially with large increments driving big revenue growth %, and then slow consistently the farther the co gets in time from the most recent big wins.
Ami Joseph
Managing Director
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Yosef Vaitsblit
Director
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