Palantir shares mixed after buyback fails to impress

Shares of Palantir Technologies (PLTR.US) trade little changed in premarket today after the company reported Q2 2023 results yesterday after the close of the Wall Street session. Palantir is very optimistic about the future and decided to lift full-year forecasts as well as announced a share buyback programme. Let's take a quick look at the results

Palantir reports third profitable quarter in a row

Palantir Technologies reported a 13% YoY jump in Q2 revenue, to $533.3 million, that matched analysts' estimates. This was driven by a 15% YoY increase in government revenue while commercial revenue increased 10% YoY. Company reported the third profitable quarter in a row with Q2 net income coming in at $28 million. Adjusted operating profit and EBITDA were slightly better than expected while EPS matched estimates. Company managed to expand its operating margin by 2 percentage points compared to a year ago and increased customer count by 38% over the past year. 

Q2 2023 results

• Revenue: $533.3 million vs $532.4 million expected ( +13% YoY)
  • Commercial: $232 million (+10% YoY)
  • Government: $302 million (+15% YoY)
• Operating profit: $10.1 million vs $41.7 million loss a year ago
• Adjusted operating profit: $135.0 million vs $121.5 million expected (+25% YoY) 
• Net income: $28 million
• Adjusted EPS: $0.05 vs $0.05 expected ($0.01 loss a year ago)
• Adjusted Ebitda: $143.4 million vs $130.1 million expected (+27% YoY) 
• Adjusted free cash flow: $96.0 million (+58% YoY)
• Adjusted operating margin: 25% vs. 23.1% expected (23.0% a year ago)
• Customer count: 421 vs 304 a year ago

Full-year forecasts upgraded

Q2 results were slightly better than expected but the main reason behind premarket gains seems to be upgrade to full-year forecasts. Palantir expects full-year revenue to exceed $2.21 billion, above the midpoint of previous forecast range of $2.19-2.24 billion, and full-year adjusted operating profit to exceed $576 million, up from a previous forecast range of $506-556 million. On top of that, the company continues to expect to generate positive net results in each quarter of 2023. When it comes to the current quarter (Q3 2023), Palantir expects revenue to reach $553-557 million and adjusted operating profit to reach $135-139) - in both cases more than expected by analysts.

Outlook for the company's future looks solid amid ongoing AI craze. Palantir launched its Artificial Intelligence Platform (AIP) that helps companies use AI to analyze data, which now has over 100 enterprise clients and company is said to be in talks with over 300 additional enterprises. It should be said that while AI craze is relatively new thing on the markets, Palantir has been using AI in its products for governments for almost 20 years already and looks to be in a good position to benefit from the trend. A boost from demand for AI products is also the prime reason behind forecast upgrade.

Q3 2023 forecast

• Revenue: $553-557 million vs $553.9 million expected
• Adjusted operating profit: $135-139 million vs $129 million expected

Full-year 2023

• Revenue: above $2.21 billion, up from previous forecast of $2.19-2.24 billion (exp. $2.21 billion)
• Adjusted operating profit: above $576 million, up from previous forecast of $506-556 million (exp. $530.3 million)
• Net income in each quarter of 2023

$1 billion buyback announced

Apart from boost to full-year forecasts, Palantir's shares may also be getting a lift from an announced buyback programme. Company said that it has authorized a $1 billion share repurchase programme. However, this has raised some questions over use of shareholders' capital. While buybacks are nothing unusual, timing of this one looks rather suboptimal.

Palantir shares were trading sideways for around a year between May 2022 and May 2023 but have managed to break out of the range later on and launch a rally. Purchasing shares after a strong rally, especially when multiples are also above those for peers, seems to be a rather poor decision.

A look at the chart

Shares of Palantir Technologies (PLTR.US) have initially gained in the after-hours trading following earnings release yesterday, adding over 3%. However, things have changed after pre-market trading began today and now stock is set to open around 2% lower compared to yesterday's cash close. Earnings from Palantir were inconclusive - results were mixed, buyback questionable and forecast upbeat - and it seems that company's share price is more driven by an overall deterioration in moods, with European indices plunging, rather than company-specific earnings release.

Taking a look at the chart at D1 interval, we can see that shares are set to open near $17.50 mark - above yesterday's daily lows. Should declines deepen, the lower limit of the short-term upward channel as well as $16.50 support zone are key levels to watch. A break below those may hint that the bearish trend reversal is underway.

Source: xStation5