Palantir Posts First Profitable Quarter. The Stock Is Soaring.

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Palantir Technologies

shares are soaring in late trading Monday after the company posted better-than-expected results for the fourth quarter, including its first-ever GAAP profit.

The data-analytics software company expects to stay in the black in 2023, as it tightens spending. Palantir (ticker: PLTR) said it is reaching sustained GAAP profitability about two years ahead of its internal expectations.

Palantir shares are 13% higher in late trading, to $8.59.

But Palantir also provided first-quarter-revenue guidance that fell short of Wall Street estimates. One factor in the company’s results is the wind-down of the company’s controversial program of investments in companies going public via SPAC mergers. In those arrangements, Palantir’s investments were offset by promised spending on the company’s software. But Wall Street generally disliked the deals, and the program was terminated last year.

For the fourth quarter, Palantir reported revenue of $509 million, above both its guidance range of $503 million to $505 million, and the Wall Street consensus forecast for $502 million. On an adjusted basis, Palantir earned four cents a share, a penny better than the Street had expected.

Under generally accepted accounting principles, fourth-quarter net income was $31 million, or a penny a share, as noted the company’s first-ever quarter of GAAP profitability. On an adjusted basis, Palantir had fourth-quarter operating income of $114 million, above the company’s target range of $78 million to $80 million. Among other factors, the company’s total operating expenses were down about $10 million from the third quarter, with R&D down 19% sequentially, and 3% year-over-year.

Government revenue was $293 million in the fourth quarter, up 23%, including $225 million of U.S. government revenue, up 22%. Commercial revenue was $215 million, up 11%, including $77 million from U.S. customers, up 12%. The company said customer count was up 9% sequentially, and 55% from a year ago. U.S. commercial customer count was up 79% year over year to 143.

For the fourth quarter, Palantir sees revenue of between $503 million and $507 million, falling short of the Street consensus forecast at $520 million, even though the midpoint of the range is up 13% from a year ago. The company sees adjusted income from operations for the quarter of between $91 million and $95 million, below consensus at $98 million.

In an interview with Barron’s, Chief Financial Officer David Glazer said that the company expects revenue from the special-purpose acquisition company, or SPAC, program in the quarter to be $16 million, down from $39 million a year ago; excluding that factor, he added, top-line growth would be about 20%. He also notes that the first quarter is a seasonally weak period for the company.

For all of 2023, Palantir projects revenue of between $2.18 billion and $2.23 billion, a little below consensus at $2.28 billion, and up 15% at the midpoint of the range. The company projects full-year adjusted income from operations of $481 million to $531 million, above consensus at $465 million. That implies an adjusted operating income margin at the middle of the range of 23%, about three percentage points above Street forecasts.

The company expects to be GAAP profitable for the year; Street consensus had called for a full year loss of 11 cents a share. Glazer notes that revenue from the “strategic investment” program was $118 million in 2022, and will be well below that in 2023, although he declined to give a specific target.

It’s also worth noting that Palantir has quietly stopped repeating CEO Alex Karp’s previous forecast that the company would post annual growth of 30% or greater through 2025; that line was last included in the company’s first-quarter 2022 earnings report.

In a letter to shareholders, Karp made the connection between the current market mania for artificial intelligence plays and the company’s own business.

“Our collective focus on artificial intelligence, including the natural language processing capabilities that have recently been made more widely available to the public, is not misplaced,” he writes. “The demand from customers for our platforms has in recent months gained additional momentum, in significant part because of the accelerating embrace of artificial intelligence by companies across sectors and industries. We anticipate that this new source of demand will contribute to our growth moving forward, above and beyond what we would have anticipated even late last year.”

He adds that the widespread adoption of AI in civilian applications “will come soon,” but that for military applications, “it has already arrived.” Adds Karp: “But we believe that the fates of the technology industry and the republic are very much intertwined.”

Write to Eric J. Savitz at [email protected]