Hey guys, it's Sasha Palantir report today Q4 Results last night and the share price went absolutely bananas and after hours trading as I'm recording this video the morning after, the stock is up 18 and I have looked through the numbers and listened to the earnings score and I am a little bit confused as to why everyone is so excited. the Palantir investor Community is jumping up and down with Joy If you want to go and watch the Rose tinted spectacle version of a review of the company, feel free to go and watch one of the usual Fanboy channels I am going to give you a rundown of the key data and share some insight and Analysis that goes a little bit deeper on Palantir I do not have any position in Palantir long or short and I have no financial interest here, so maybe that could make for a slightly more balanced bit of analysis. So the main point from the parenting results was the fact that Q4 was the first quarter on Panettiest History where they were profitable on a gap basis and this is the point. Apparently we're ramming home over and over on the earnings score and you see the first bullet point on the press release right here.

Palantir made a gap net income of 31 million dollars Gap earnings per share of one cent we celebrate. The problem is, if you look under the Bonnet the story looks a little different. so let's look at this in a bit more detail. Revenue for Q4 was 508.6 million dollars and all the media Outlets printed the same news story that this is a big beat apparently and I've heard pretty much all the people on social media say something I'm not sure what exactly it'd be because if you go and look at the Q3 press release the one before, you can see the pounds here themselves guided for Revenue 503 to 505 million dollars.

but if the Foreign Exchange impact wasn't there as much in Q4 then their guidance was for 508 to 510 million dollars and a foreign exchange headwind did turn around and largely go away towards the end of Q4. So the revenue is slap bang on expectations pretty much which is good in the current environment. A lot lot of companies out there are missing their earnings targets, missing their revenue growth quite a lot at the moment, so that's kind of good. But anyway, Revenue was 508.6 million dollars, which is 17.5 up on the same quarter in 2021, and right here.

before we look any further down the P L this is the first problem. Palantir's evaluation is very, very heavily based on future growth projections. The difference between growing at 30 or more than 30 in the future compared to Growing 15 or maybe 10 percent in the future is huge. We're talking orders of magnitude difference in what the valuation of the business would be.

Today's profit margin is an irrelevant metric. Everyone's jumping up and down because there's a one cent per share profit. There is absolutely zero difference between making one cent per share or losing one cent per share when your shares trade at nine Dollars and the growth of Palantir continues slowing down in a really bad way. Remember one in every single quarterly Earnings Palantir printed this line which said per long-term guidance policy as provided by a chief executive officer Alex Cup We continue to expect annual revenue growth of 30 or greater through 2025..

this line was printed in every single quarterly earnings report, but in the last three quarterly Updates this line has disappeared. It just got deleted as if it never was there. And the reason has been deleted is because growth has massively slowed down and is continuing to slow down, including in Q4 I Just went and wrote down all of the quarterly Revenue numbers available since Palantir went public in a spreadsheet. And here is the year-on-year growth chart for those quarters: I Know that Alice Carbon.

The Die Hard Palantir fans will dress this up on whichever way they want to, but the trend is certainly headed in a particular direction and the direction is not good and it is not looking at all. Likely in any sense when you look at this that they are likely to hit 30 growth through 2025.. the last report in which parent here promised the 30 growth per year was in Q1 2022 when the growth rate was 30.8 percent when they reported on the data and then that line was deleted immediately after the growth slowed down to under 30. And you can see why while we're in this topic of the Q1 guidance from Palantiris for Revenue to be between 503 and 507 million dollars, so that's between 12.7 and 13.6 percent growth year on year.

So another massive slowdown, even versus the quarter before Palantir is usually very accurate in forecasting the next quarter because they are a big B2B business where they pretty much know exactly which contracts they're going to be collecting money on this quarter. especially given that we are halfway through this next quarter already and their full year guidance is for around 2.2 billion dollars in Revenue, which is 17 growth year on year a big drop from the previous year, but I'm guessing the balancer is expecting some significant Improvement in growth towards the back end of the year because their annual growth Target is a fair bit higher than their Q1 forecast, but both of those are significantly lower than that original 30 goal. Anyway, looking through the piano, you can see two really interesting things. Now, the first one is that the operating costs have reduced considerably in Q4 as a proportion of Revenue.

As a result, the operational loss reduced from 59 million dollars in Q4 2021 to 18 million dollars in Q4 2022. So how did the operating costs fall so much? Well, you can see the answer a little lower down. Stock based compensation fell from 166.9 million dollars to 129.4 million dollars. Almost 40 million dollars, which pretty much makes up that entire Gap in the operating loss.

And if you look at the cash flow statement, you can see that the proceeds from the exercise of common stock options is pretty low as well. just 86 million dollars. Interesting right? Then you can go and look at the 10q submission for Q3 that's the latest one that's available as I'm recording this video, the latest 10K is not yet out and in that thank you you can see that the options that are vested and exercisable as as of September 30th have an average price of 5.61 and the ones that have invested yet the ones that are moving through intervesting have an average price of eight dollars. So the shares that have been investing in the last quarter are coming in at a price of around eight dollars.

and you can see that a lot of Q4 for a lot of it. The pound tier share price was sitting at below eight dollars. So there's two things happening here. First, if you're a Palantir employee and your options come to best, you have the right to go and buy the stock at that price now.

usually because you get given them shares a long time before they come to vest, the company has grown. In that time the share prices run. Then when it comes to go and pay, you're usually buying the shares at a huge discount and that's how employees get compensated. But here, employees are getting an absolutely deal because you can go and buy those shares on the open market for less money.

So if you wanted to go and buy some stock as an employee, you might as well do that instead. And even if you get a small discount on some of the days, you'll have to pay a chunk of the difference between the price of which you're buying and the strike, um, in tax. So there is that as well. You can see that in the first three quarters of 2022, only 16 000 options were exercised out of the 349 000 at the start of the year.

in the previous year when Palantir share price blew up and went to 25 or 30 or whatever. 179 000 out of the 536 000 options were exercise. Now you can see that when Palantir went public in 2020, the management awarded themselves 397.9 million options, an average price of 7.43 as part of the IPO and the average remaining contractual life on the options sitting on the books is eight and a half years, so Palantir is not continuing to dish out shares. There's no new options being added to this pool.

The fully diluted number is not getting any worse, which is good for shareholders. So all the people talking about Palantir can continuously diluting don't really know what they're talking about because the numbers just aren't showing it. But stock based compensation is calculated on an accrual basis. When you dish out a load of options to your staff, say at an eight dollar price over 10 years, you don't record the full amount that you've just given out a stock based compensation.

That's not how it works. you'll record 80 cents in the first year. for example, if it's a 10-year period, 80 cents in the second year, and so on. and so on.

If some of your staff leave before the stock vest, then they go and lose and forfeit the rights and you get some of that money back. So if you stock compensation in that case will drop. But if some of those options mature and drop off the books, then you stop paying those 80 cents a year on those shares because you've paid the 10 years worth of the 80 cents, right? And here is the data: In Q3 2021, Palantir had 334 and a half million options outstanding in Q4 2021 Penalty had just under 350 million options outstanding. So around 25 million options were exercised in Q4 4 of 2021 alone.

So when you're comparing stock based compensation in Q4 2022 to that previous year, the only reason really that it is falling pretty much is because in 2021, the number of options outstanding was much larger and the management was busy exercising those options at a massive discount compared to the share price at the time. In addition, you can see that Rsus granted during 2022 were being granted at 11.77 on average with that number coming down through the year. So the number in Q3 and the number in Q4 when that report comes out is going to be substantially lower. Well, when you look at the same Rsus being given the year before, they were being dished out at Double The value those Rsus you can see are being recognized over a three-year period, so the new RSU is being granted are significantly reducing the cost of stock based compensation just because of the price reducing.

The point here is that the drop in stock based compensation has nothing at all to do with what Palantir is currently doing. They're not changing their strategy. There's no difference to their approach to options issuance in. it's just a factor of the vesting periods of the original options given out way back when and a combination of that with the current share price.

So going back to the P L parents here actually lost money on their operations. The core business is still not profitable, although it is getting pretty close. It's probably going to hit operational profitability I'm guessing at some point in the next few quarters, but then you can see the penalty made: 11 million dollars net in interest income. Not surprising because the balance sheet has 2.6 billion dollars in cash and cash equivalents with the interest rates where they are at the moment.

I'm guessing they're going to be making a heck of a lot more interest income in 2023. but the one thing that made Parents here profitable is this mysterious 44.6 million dollars in other income. There are no footnotes here, no explanation as to what it is, but I Looked at the cash flow statement and there is a 44.3 million dollars from Step acquisition recorded. and further down in the financing section, there is a 66.7 million dollars from business combinations I checked and neither of those lines was there in Q3 so these just turned up in Q4 a step.

acquisition is an accounting term for getting a bump in your profit numbers artificially when you buy out a controlling stake in a company where you already own shares before in a company, but not above the controlling level. I Haven't seen the 10K form yet. Maybe the details are going to be in there as to exactly what this is. Maybe some Palantir fans already know and are going to say in the comments.

but Palante is only profitable in Q4 because of this accounting trick in buying a controlling stake in one of the companies that we're already invested in. And by the way, Palantir lost 272 million dollars in 2022 from their marketable Securities which is incredible because the balance sheet only has 35 million dollars remaining in marketable Securities on the books. So Palantine managed to lose 90 percent of their investments in Spax in one year. A truly astoundingly dumb way to waste money off the shareholders.

And yes, I said the exact same thing when they first made those Investments on on the very first earnings score after that happened because it was extremely obvious at the time given the massively speculative nature of those Investments and the type of companies that were piling money into those companies just happened to be penalty or shareholders. So penalty was giving them money so that they can then go and buy their services. I'm not going to go into the details I have shown in my model before I'm for Palantir and explain how massively sensitive it is to the rate of growth in Revenue if the rate of growth Falls to 15 this year and then maybe it falls a little bit more. the difference in valuation to growing at 30 or above is huge now.

I Also, really don't like how Palantir massages the data that they present because it shows signs of dishonesty in a presentation apparently Go and show all their positives and completely ignore and often delete charts that are negatives. I'm not going to go through a huge amount of detail I Talked about this before in the presentation penalty for example, show that U.S Revenue grew by 32 percent. It's the very first chance. Sounds great except if you ask Revenue grew by 32 percent in 20 22 and the overall Revenue only Grew by 24.

And if you read between the lines, it means that Revenue outside the US is not growing I Just did the math using my calculator. It means that the revenue outside the US only grew by 12 and this is a problem for palancy's growth. Ambitions The US market is Big Sure, I get it, but there are only so many super large clients, especially government clients that will want to buy Palantir software and growth outside the US continues to stall. If Palantir want to continue growing at significant rates for long periods of time in the future, this trend is really not helping that, then look at this slide.

It says a commercial customers Grew From 147 in Q4 2021 to 260 in Q4 2022 An incredible result. But then on the right it says that the revenue per top 20 customer grew 13 as well. And it looks like from the juxtaposition of those two pieces of data that the number of customers is growing and the revenue per customer is growing as well. Well, right? Well, except this slide is hugely misleading because on the left they are showing you commercial customers and on the right it's total customers including government ones.

They are just put next to each other to present a massively inaccurate picture because on a different slide, you can see the commercial Revenue grew by 29 in 2022 and again I just went and did the math and it means that the average revenue per commercial customer is not up 13 like the slicer Jess is actually down 30 from 4.4 million to 3.2 million. That's a massive problem because it sounds like Palantir has picked up all the low-hanging fruit with the commercial customers already or at least many of the low hanging fruits. Now the new customers the parents here is acquiring are billing much much less than the old ones, bringing the average return per commercial customer down and that average number is dropping off fast. The reason this is a problem is that in order to get any meaningful long-term growth in Revenue you and Commercial being the area where they can expand, they will have to add a huge number of commercial customers very fast to offset that reducing Revenue per customer Factor And this is why I Personally don't have a position in Palantir I used to, but I don't The company has a rock solid balance sheet.

There's not going to be any financial problems at any time soon. There's nothing like that. but I Just don't see any upside currently in the valuation. This situation is only just getting worse.

I Don't see what the growth that has to happen to justify the valuation is going to come from. They're already saying that this coming year they're only expecting to grow by whatever it is 15 or 17 percent. If you found this video useful, please don't forget to smash the like button for the YouTube algorithm. Thank you so much for watching I Really appreciate it and as always I'll see you guys later Foreign.