2023-05-18 08:40:15 ET
Summary
- ARK Innovation ETF has made two daily purchases of Palantir.
- Software company has soared after reporting Q1 results.
- Analysts see meaningful downside for PLTR stock.
One of the biggest winners during this earnings season so far has been Palantir ( PLTR ). The software company jumped more than 23% the day after reporting strong Q1 results , with the rally continuing further this week. Now that the name has reported its second consecutive quarter of positive GAAP net income, a former supporter of the name has come back to the stock.
For Q1, Palantir reported revenues of more than $525 million. This was nearly 18% growth over the prior year period, and it beat street estimates by almost $20 million. The strongest part of the business was the government segment that saw 20% revenue growth, with commercial revenues seeing a 15% increase. The company reported a 41% increase in its customer count year over year, with a 7% sequential rise.
Perhaps most important item for Palantir was strong expense management. Operating expenses rose only a little more than 5% over the prior year period, leading operating income to come in at $4 million as compared to a near $40 million loss in Q1 2022. Adjusted net income more than doubled to $107 million, with non-GAAP earnings per share of 5 cents beating by a penny. While the share count did rise slightly, adjusted free cash flow also soared more than 6 times to almost $189 million. Palantir expects to remain profitable each quarter through the end of the year.
Last Wednesday (May 10th), Cathie Wood's flagship ARK Innovation ETF ( ARKK ) bought over 3.75 million shares of Palantir according to the firm's daily trades e-mail. The ARK Next Generation Internet ETF ( ARKW ) also bought over 600,000 shares on that day. On Wednesday the 17th, another 912,000 or so shares were bought in ARKK, with another 350,000 shares being bought in the ARKW ETF and the ARK Fintech Innovation ETF ( ARKF ) combined.
For those that have followed Ark Invest, Palantir is not a completely new holding. A number of their ETFs held this stock from 2020 to early 2022, with the peak being a bit over 37 million shares as the graphic below shows. The flagship ARKK fund held roughly 24.5 million shares in the middle of February 2022 before it completely liquidated the position.
Just before sales started, Palantir had a little under a 2.70% weight in the ARKK ETF, being the 16th largest holding of 40. Going into Wednesday, Palantir was the 5th smallest of 28 holdings in ARKK, but its weight could be rising a bit in the coming days. Of course, Ark Invest has seen a bit of redemptions since early 2022, so if ARKK gets back to holding $350 million worth of Palantir shares, that would give it a roughly 5% weight in the ETF currently.
Palantir seems to fit the mold of a Cathie Wood name, with Palantir's software expected to be a big part of the future of big data and analytics. What does surprise me a little here is that revenues at the company are only expected to rise in the 16% to 21% per year range each year for the next three. That's not as much projected growth as some of her other favorites, but we also haven't seen Ark Invest publicly release one of their models on Palantir either.
As for Palantir shares, they rallied more than 8% on Wednesday, closing above $10 for the first time since the middle of February. The $10.25 final price was the highest close since last August, with the stock up more than 40% since its recent low just prior to earnings. Interestingly enough, the average analyst price target on the street is under $9 currently, implying more than 12% downside from current levels. As the chart below shows, the stock is now well above its 50-day moving average (purple line), which seemingly has ended up being the top for shares the last couple of times it happened.
In the end, Palantir reported strong Q1 results, leading notable ETF firm Ark Invest and Cathie Wood to jump back into the name. Palantir's revenues are growing nicely and the name is now GAAP profitable, sending the stock back above $10 this week. Ark Invest, which previously held the name across a number of its ETFs, has already added more than 5 million shares. It will be interesting to see where Palantir's weight in ARKK and some of the other funds ends up in the coming weeks if we get more purchases.
For further details see:
Palantir Back In Cathie Wood's Flagship Fund