Palantir shares drop after revenue beats forecasts but contract growth slows

The company reported third-quarter revenue of $2.313 billion, up 96% year-on-year, but contract value growth lagged behind

Palantir Technologies, the artificial intelligence software company, saw its shares fall by about 8% to $164.05 in premarket trading on Tuesday, 3 November, even as its quarterly revenue surpassed Wall Street expectations. The decline in Palantir shares followed the company’s announcement of third-quarter revenue reaching $2.313 billion, a 96% increase from the same period a year earlier and above the roughly $2.18 billion analysts had forecast, according to International Business Times.

The stock later pared its losses, trading a little over 1% lower at 2 p.m. Eastern Time. Palantir also reported adjusted earnings of 44 cents per share, exceeding the consensus estimate of 41 cents. Despite these strong headline numbers, investor focus shifted to the pace of new contract growth, a key indicator of future revenue sustainability for the company.

Patrick Boyle, a financial commentator and former hedge fund manager who lectures at King’s College London and Queen Mary, University of London, commented on the market’s reaction. “At that price, investors don’t spend much time on the quarter that just ended,” Boyle said. “They look for signs of what comes next, and those signs softened.” Boyle noted that Palantir’s valuation, at approximately 50 times this year’s expected revenue after a share price increase of nearly 900% over three years, leaves little margin for slowing growth.

Jacopo Viganò of GB Capital echoed these concerns, stating, “Palantir’s valuation leaves little room for growth to slow. Revenue rose 96% year over year to $2.313 billion, while the value of contracts closed grew 6%. I read the selloff as concern about whether future contract growth can sustain the expectations built into the share price.”

During the quarter, Palantir reported $2.918 billion in total contract value closed. Within its U.S. commercial business, contract value increased by 11% compared to the previous year. Boyle added that Palantir’s consistent record of exceeding forecasts has shifted investor expectations: “So investors stopped asking whether it would beat and started asking by how much. When everyone expects a beat, a beat becomes the base case.”

Source: https://www.ibtimes.com/palantir-revenue-growth-contracts-shares-fall-3809340