Palantir (NYSE:PLTR) shares have rallied since the software company announced upbeat fourth-quarter results, marking its first-ever profitable quarter on a GAAP basis. Shares have risen nearly 21% over the past 5 trading days and have jumped more than 43% since the start of this year.
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Palantir Stock Surges on Improved Profitability
Palantir’s Q4 2022 revenue increased 18% year-over-year to $509 million, driven by a 23% rise in government revenue to $293 million and an 11% growth in commercial revenue to $215 million. Moreover, the company swung to a GAAP EPS of $0.01 from a loss per share of $0.08 in the prior-year quarter. Some critics pointed out that company’s Q4 2022 net income included a one-time gain of $44 million from the acquisition of Palantir’s joint venture in Japan.
Palantir not only reported quarterly GAAP profit for the first time, the company also assured investors about delivering GAAP net income in 2023. The company had earlier promised GAAP profitability in 2025. However, Q1 2023 and full-year revenue guidance fell short of the Street’s projections.
Aside from expectations of improved profitability in 2023, shares also rose due to the speculation of a potential acquisition. During the Q4 earnings call, CEO Alex Karp stated, “Because we’re winning, I think there’s going to be a lot of interest in us in buying our software and potentially in buying us, but we are pretty focused on our product, which is us.”
Is Palantir a Buy or Hold?
Monness analyst Brian White believes that Palantir is “well positioned to benefit from digital transformation, Big Data, the cloud, AI, and a mercurial geopolitical landscape.” That said, he feels that the company’s revenue recognition from government-related contracts has “proven lumpy” and cautioned that “the darkest days of this downturn are ahead.”
White lowered his revenue estimates for the first quarter and full-year 2023 but increased his EPS estimates. White reiterated a Hold rating for PLTR.
Overall, Wall Street is sidelined on Palantir, with a Hold consensus rating based on two Buys, six Holds, and five Sells. The average PLTR stock price target of $8.41 suggests a possible downside of 8.6% from current levels.
Conclusion
While Palantir’s Q4 2022 profitability and 2023 earnings guidance excited investors, several analysts are wary of the slowing revenue growth rate and do not see further upside in the stock from current levels. There are also concerns about the unpredictability associated with the company’s large customer deals compared to other SaaS (Software as a Service) companies that generate more predictable revenues.
Analyst will closely watch the company’s ability to generate profits consistently in the quarters ahead.
