Data analytics company Palantir released a huge third-quarter earnings report on Monday, and its press release even boasted that the numbers “shatter consensus expectations.”
However, retail investors’ reaction to the company was muted on Tuesday, and the stock price fell slightly. This is because enterprise sales, a major growth area for Palantir, were showing signs of slowing down.
First, there’s good news for the company’s investors. Revenue rose 96% year over year and 20% sequentially to $2.31 billion, beating analysts’ expectations of $2.18 billion. This is the first time Palantir has exceeded $2 billion in a quarter. Palantir also reported adjusted earnings per share (earnings per share excluding certain one-time items) of 44 cents, compared to analysts’ expectations of 41 cents. The company also raised its full-year earnings outlook, or forecast. Normally, that alone would cause stock prices to soar.
The deciding factor was that Palantir’s U.S. commercial revenues exceeded U.S. government revenues for the first time in history. The company reported commercial contracts of $984 million (up 148% year-over-year), compared to $953 million in U.S. government revenue.
Why do businesses love it so much? They sign up for our AI software to run frontier models and securely custom train zero-gravity models without sharing data or business processes with external AI labs. Additionally, Palantir has long offered what is now known as “forward deployment” software engineering, where its engineers work directly with customers to customize software.
But Palantir also revealed signs that aren’t as rosy. Even though companies are moving faster than ever, they often sign up for short-term trials.
“What Ryan and I are seeing on the front lines and in the commercials is a much faster interaction, a much faster time to deployment, and the ability to dramatically scale contracts with shorter contract terms,” CEO Alex Karp (pictured above) told Wall Street analysts on a quarterly earnings call.
Palantir is currently experiencing one of the unique AI phenomena within the enterprise. Companies want to try out AI software right away, bypassing the usual bureaucracy, but they are also willing to cancel contracts.
Mr. Karp used one off-color metaphor after another to explain how disinterested he was in maintaining his business.
“We’ve kind of gone from being the most attractive guy in the physics department to being the captain of the football team,” he said, explaining the influx of prospective corporate clients. “On the contrary, as you know, once you go to Palantir, you can’t go back. That’s exactly what it is, and it shows in our numbers.”
The numbers don’t yet confirm Palantir’s long-term success. The company signed a massive $1.46 billion in contracts from U.S. companies during the quarter, which is actually down from the previous quarter’s record $2.13 billion. This suggests that sales have slowed, at least in the most recent quarter.
The upcoming financial results will show whether Palantir solidifies its role as America’s emerging enterprise AI provider. Historically, many companies sign their largest technology purchases in the final quarter of the year. Karp and his team certainly seem confident. They raised their outlook for U.S. commercial revenue to “exceed $3.559 billion, representing a growth rate of at least 143%.”
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