What happened
First-quarter results from Palantir Technologies (PLTR -0.23%) failed to live up to investors' lofty expectations. The stock fell as a result, with the shares down 16.5% for May, according to data provided by S&P Global Market Intelligence.
So what
Palantir provides data analytics for government and commercial customers. It is best known for its defense contractor side, which famously was said to be involved in the capture of Osama bin Laden. The stock was a huge initial success following its September 2020 public debut, rising as much as 300% in the months that followed its IPO, but has steadily been losing steam over the past year.
Image source: Getty Images.
The company's first-quarter results in early May did little to stem the bleeding. Palantir reported earnings of $0.02 per share, short of the $0.04 per-share consensus, on revenue that at $446.4 million slightly beat expectations. The company said it continues to see annual revenue growth of 30% or greater through 2025.
Alas, investors wanted more. Palantir lost nearly one-third of its value in the days following the earnings release in part due to several skeptical notes from Wall Street analysts. Although Palantir is forecasting continued growth, that growth appears to be decelerating. Palantir's government business slowed for a fifth consecutive quarter, and commercial revenue would have decelerated if not for business booked from companies that Palantir has invested in.
RBC Capital downgraded Palantir to underperform, from sector perform, and cut its price target in half, with analyst Rishi Jaluria expressing "decreased confidence" that the company will hit its growth targets. At least two other banks lowered their price targets for Palantir shares.
Now what
The issue isn't whether Palantir has impressive technology, or whether it has the potential to be a solid, profitable company. On those metrics, Palantir scores well. The issue is what the market is willing to pay for that business. Initial enthusiasm about the company's tech and its ability to conquer new worlds led to the post-IPO soaring stock price, but with each passing quarter expectations have come a little more back to Earth.
To be fair, its hard to say exactly how Palantir should be valued. Trading at more than 10 times sales, Palantir looks expensive compared to government IT specialist Booz Allen Hamilton but cheap compared to commercial data analysis vendor Snowflake. Government customers accounted for 54% of Palantir's revenue in the most recent quarter, and although commercial is growing slightly faster it will take years, if ever, for Palantir's book of business to resemble Snowflake's.
So, although Palantir, the business, is healthy, Palantir the stock has had few catalysts to push it higher. May's earnings report failed to excite, and the stock traded off as a result.
