Before Thursday’s market action kicks off, Palantir (PLTR) will deliver fourth-quarter financials. Deutsche Bank’s Brad Zelnick expects the results will come in according to the guide, which calls for revenue of $418 million.
However, the 5-star analyst believes most of the investor focus will turn to the “sustainability and quality of growth and any initial view for C1Q22 and CY22.”
Zelnick notes that the slowdown in Government and Commercial revenue, coupled with “contribution margin compression,” is a worrying sign regarding the long-term opportunity and profitability for Palantir.
That said, after an uncharacteristic 6% drop in C3Q, based on recent deal activity and “healthy reported backlog metrics,” Zelnick is looking for a significant quarter-over-quarter uptick in C4Q Government revenue. While conceding the government business is “somewhat lumpy in nature,” the analyst continues to believe Palantir’s Government opportunity is “substantial.” While growth rates are likely to “moderate,” Zelnick believes the “magnitude of the long-term opportunity remains intact.”
But as has often been noted about Palantir, the big data specialist generates the bulk of its revenue from government contracts, which, while large in nature, means most of the sales come from just a few clients. Therefore, it is seen as essential for the company to make headway in the commercial segment for the business to ultimately succeed. Here, Zelnick is not sure the company has what it takes to make the grade.
“Despite some positive signs on new pilots, customer count and deal volume, the flow through to Commercial revenue has been underwhelming thus far,” noted Zelnick, who remains “cautious” on the Commercial side, believing the opportunity for Palantir here is “smaller than many appreciate.” The analyst sees “proprietary platforms” such as Palantir providing more of a “niche” service.
As such, with an “eye toward stabilizing growth and profitability as keys to begin rebuilding confidence,” ahead of the print, Zelnick rates PLTR a Hold…