Palantir Technologies PLTR is set to release its first-quarter earnings report on May 6. Here’s Morningstar’s take on what to look for in Palantir’s earnings and stock.
What to Watch for In Palantir’s Q1 Earnings
Billings: To get a better sense of Palantir’s success with artificial intelligence and whether its boot camps (hands-on training sessions for customers to implement the Artificial Intelligence Platform into their business) are leading to customer conversions, investors will be keenly seeking forward-looking indicators of demand for the firm’s solutions.
Customer additions (particularly in commercial): Just like last quarter, we will keep a keen eye on whether new customers are onboarding Palantir’s platforms, and to what degree the Artificial Intelligence Platform is helping it land users. Again, we will be curious about whether the firm’s tremendous number of boot camps will translate into actual customers.
Government sales: In the wake of the firm scoring the TITAN contract with the US government, management’s commentary on this vertical will be of interest. We would expect an uptick not only due to the contract but also a general uplift in governmental spending on AI, big data, etc.
Key Morningstar Metrics for Palantir
• Fair Value Estimate: $16.00
• Morningstar Rating: ★★
• Morningstar Economic Moat Rating: Narrow
• Morningstar Uncertainty Rating: Very High
PLTR Bulls Say
• Palantir has strong secular tailwinds, as the AI/ML market is expected to grow rapidly due to the exponential increase in data harvested by organizations.
• With products targeting both commercial and governmental clients, Palantir has a distributed top line, with noncyclical governmental revenue insulating the overall top line during lean times.
• Palantir’s focus on modular sales could lead to substantially more commercial clients, which it could subsequently upsell.
PLTR Bears Say
• By not selling to countries or companies that are antithetical to its mission and cultural values, Palantir has self-restricted its growth opportunities.
• Palantir’s AI platform is off to a good start, but we anticipate robust competition in the years ahead.
• Palantir’s executive team has made questionable strategic decisions in the past. While past performance isn’t necessarily indicative of future results, the missteps could merit caution.
Fair Value Estimate for Palantir Stock
With its 2-star rating, we believe Palantir’s stock is overvalued compared with our long-term fair value estimate of $16 per share, which implies a 2024 enterprise value/sales multiple of 12 times. We forecast Palantir’s revenue to grow at a 21% compound annual growth rate over the next five years as the firm expands both governmental and commercial operations.
We expect the majority of this top-line growth to be driven by commercial clients as the firm seeks to broaden its commercial client base. While government clients can be sticky, large governmental contracts create lumpiness in revenue. As a result, Palantir’s shift to more commercial clients should create a more ratable revenue mix. We also expect the firm to continue expanding sales within its existing client base. We view Palantir’s strong net retention rate as an indicator of this.