Hey guys, it's sasha palin here just reported that q1 earnings and the results were not good. The presentation of the results was even worse than the results, and the share price has taken a massive beating, dropping 20 percent down to 7.50. I'm recording in this video. After the disaster, that was the earnings score in this video, i'm going to tell you what happened in those earnings by palantir explain some of the details.

Some of the in-depth analysis that i think is really quite important. Just so you're aware i'm a paleonto shareholder and i hold a long position in my portfolio but as with all analysis on my channel, i will say things as i see them, so unfortunately, you ain't going to get a sugarcoated version of the earnings call here. If you do want a rose, tinted version, where everything is going to the moon and everything is dandy, please feel free to go and watch any of the other people covering these earnings. Now, all right, let's quickly, look at the high level data on the surface.

It kind of looks okay kind of looks. Good revenue grew 31 in q1. That is ahead of their guidance and their long-term target of 30 growth per year. Us commercial revenue for palancia grew by 136, year-on-year in q1, an exceptionally high number, but it was not all dandy.

I'm going to come to that in just a second palancy's. Operating costs continue to decline as a function of revenue. In q1. Valencia lost 39 million dollars from operations, which is an 8.8 percent negative operating margin, and the good news is that, on a gap basis, that number is getting better and better every quarter, and there is a graph in the slides that show how it is heading towards The break-even point, however, there are several major problems that are brewing under the bonnet first, the non-gaap numbers are actually falling.

It is relatively easy for palantir to show healthy non-gaap numbers when stock-based compensation is a really huge part of your overall cost base of of your overall expenditure. You go and take out all of that stock-based compensation out of the numbers and hey presto. It looks like you've made a huge amount of money on a non-gaap basis, but as those stock based compensation numbers decline and they convert into other ways of compensating your staff or getting the right people through the door. You can see here that the non-gaap margin is now beginning to drop and it's dropped to 26 in q1.

Well, actually, you can't see it because palantir chose to remove the graph that they used to have in the last set of updates. They now only show you the improvements of the non-gaap data, but do not show you that the gap version is currently dropping, and this is a really important point that i'm going to make about this set of results. I will keep coming back to it over and over, and i am sorry about this, but it's really crucial. The presentation of data in here is, in my opinion, somewhat disingenuous.

The whole presentation, especially the answers to pre-prepared questions, really came across as one slimy used car salesman pitch and that really did not come across well for me and based on the share price movement today, i'm guessing, i wasn't the only one the slides have been adjusted From the format that they have been using recently to avoid showing anything negative, they have deleted, slides several graphs and moved some of them to the appendix. To avoid showing negative information, for example. Here is a slide that is really crucial, because it is trying to tell a story about how valencia is actually growing really well. It shows that the commercial customer count has grown from 147 clients last quarter to 184, this quarter and next to it, they show that the average revenue per 20 top customers has grown up by 24, and the problem is that these two graphs, the graph on the Left and the graph on the right are not showing you the same data.

The graph on the left is showing in the growth in commercial customer numbers. The graph on the right is showing you the average revenue of the top 20 total customers. Palanci's biggest clients are government organizations and the military, not commercial clients. So if you quickly look at these charts, it sure looks great.

Customer numbers are growing and the revenue per customer is also growing really great, because when you multiply them together, it looks really awesome for the next few years, except the customer numbers that are growing are not the same customers as the ones whose revenue is growing. According to the chart, next to it scroll up - and you can see above the parents here - added 40 net new clients in q1 - that is a great number by the way, much much higher than the 10 they added in q1 last year, much higher than any of The recent quarters so massive massive thumbs up on that one, that's a very good sign, but then scroll down, and you can see that 37 of those 40 new clients were commercial customers. So the government side of the business only net grew by three from 90 to 93 customers. So it's good in a way that those big government contracts are earning more per customer.

But there is also a potential argument that the government side of the business is slowing down overall, because if you scroll down to the appendix you can see the government growth has stunted recently. It was only 16 growth in q1 this year, substantially below the overall 30 growth target. So the issue we have is that the government business growth is slowing down rapidly, but the commercial side of the business is not picking up fast enough to take over to pick up the mantle. The guidance for q2 said that they're expecting 470 million dollars in revenue, and that is only a 25 increase on the same quarter last year.

So that is a big problem. The rate of growth is already dipping below their long-term 30 target, and there is a very, very big lack of acknowledgement of that fact or any explanation of how they are working to solve it, and the thing is solving for that. Growth today should be far easier than in five years time, because growing by 30 of a lower number should be easier than growing off a much larger number in the future. The adjusted operating margin in q2 is forecast to be 20 remember.

This is the number that was 26 percent of this quarter and before this quarter it was over 30. Now you wouldn't actually know that, because this quarter, they stopped publishing the chart that showed the adjusting operating margin over time. Because, if you add on the 26, this quarter and the 20 next quarter to the chart that they used to publish it would look pretty sad and the thing is, there is probably a good reason why the drop is so substantial. But that reason was not provided in the paperwork they haven't explained it, they haven't covered it, they didn't explain it on the call either and nobody asked the question.

So here is why it's really important. If we look back at the chart that shows gap and non-gaap operating margins before the last two quarters, it kind of looked like gap margin is sitting nice and flat at 30 percent and eventually, as palantir grows and matures that non-gaap line will go and meet the Gap line and we're going to be seeing this really solid business, maybe making several billion dollars a quarter. You know at some point in the distant future with 30, maybe 35 percent gross margins on a gap basis, i'm sorry net margins and that is gon na look extremely good, but now we are seeing the gap. Margins drop, they've dropped to 26, this quarter 20.

According to them next quarter, so the fear here as a shareholder is that when the two lines do meet they're going to meet much closer to zero than at that 30 mark and investing in a software as a service business where typically net margins are reasonably high. With maybe just single digit operating margins doesn't sound massively appealing. They clearly thought that people might pick up on this point. So there is a bullet point in the guidance that says, adjusted operating margin for 2022 will be 27.

The problem is that it doesn't say why or how it will be 27, given that it is now lower than 27, and it will be dipping further down to 20 next quarter. The sort of good thing, though, on the counter, is that three months ago, when panetta was giving the guidance for the next year, they also gave an adjusted margin of 27 for the whole year and their operating margin for this first quarter was just 23. So in a way, they're kind of doing what they said, maybe slightly better, but then i'm not seeing anything in the plan, any kind of reasonable explanation, other than just a load of very generic mumbo jumbo as to why those margins are going to pick up in Q2, what exactly is going to change and how they're going to go and improve the business to try to hit profitability? Now there is one potentially very positive piece of news in here that is really really important to cover the total number of customers. That grew remember by 37.

New commercial customers is really big. It is a 25 increase quarter and quarter. And if you look at the revenue graphs by cohort from the last annual report, you can see that the commercial revenue tends to deliver very little. In the first year of having a customer on board, the customers booked in 2018 only earned seven million dollars during 2018..

They then earned 10 million and 2019 15 million in 2020 and 17 million in 2021.. The customers booked in 2019 only earned 19 million dollars in 2019. They then earned 102 million dollars just two years later in 2021, more than five times as much so you can see that commercial customers have this tendency of being brought on board. That generally, don't really make very much money during the first year.

It takes time to onboard my grades, set up, etc, etc, etc. Whatever it is, it takes time, so the benefit of all of those new customers coming through will not be seen today, you'll be seen potentially in the next two to three years. When we're seeing the revenue from them come through, the difficulty isn't knowing whether those new customers are the same profile as the customers in the older cohorts. Now are they the same size? Are they potentially going to generate the same sort of revenue or have we collected the low hanging fruit early on? Have we picked off the big, easy customers which are making a lot of money, and are we now going for the smaller clients, because having four times as many customers is great, if those new customers are roughly the same kind of customer? But if those new customers are say 10 times smaller, for example, it doesn't matter if you have four times as many, the net growth is going to be negative.

Now there wasn't any information either way on the mix of these new customers. So i don't know it is possible that this is very, very good news, so we'll have to wait on the data to come through, but the warning flag for me is a few slides further down, because here it says that palantir ended q1 with three and a Half billion dollars in total remaining deal value. Now it looks good because it is up 26 year and year, but here is the thing last quarter that didn't even publish that number in the slides and the quarter before that in q3, 2021 six months ago, that number was 3.6 billion, so the outstanding deal value Has dropped in the last two quarters, despite all of these new customers come in, so there is an indicator that the new customers coming in are perhaps not of the same value and not saying up to the same kind of deals as the ones that they already Have that number is the sum of the signed contracts signed agreements that the company that pallante expects to collect in the future, but haven't collected yet so the indicator here is that the sum of the outstanding contracts is shrinking rather than growing. Despite the total customer base.

Growing in absolute numbers - and that is a really negative sign - it is possible that new customers and new deals are not done on as long a basis as before, and that might be the mitigating factor. Maybe you know they used to sell contracts that were longer and now they're selling more money per year, but over shorter time frames, and that could be the sort of reason why these numbers look the way they are. They used to show charts by the way of how this remaining deal of value is split between commercial and government and a whole load of information, and what the average number of years on those deals is, but they don't show any of that data in this report. Again, obscuring the level of information that we, as shared shareholders, have in order to be able to make a determination on how well the business is doing, and i really don't like that.

The obvious question that comes up is why, if the average length of contracts is coming down, and that explains why the total outstanding deal value is staying flat, and that is actually a positive thing, then it would probably be a good idea to show it right. If you were the company, you'd, probably go and print that number to explain, hey look, the total number is staying flat, but it's because the average deal length is shortening and as a result, we're still going to be making more money per year. But if you're not showing the number, while the number of outstanding dollars that your yet collect is dropping, it begs the really obvious question now in the guidance there was one very curious sentence. After saying they are targeting 470 million dollars in revenue in q2.

They also say there is a wide range of potential upside to our guidance, including those driven by our role in responding to developing geopolitical events. So they are saying in a roundabout way that they think the revenue might jump up as countries like the us, uk and germany increase spending on military intelligence because of the war in ukraine. That's kind of what it says between the lines, but there are other potential upsides other than this as well. According to the sentence and the obvious question was well: what are these potential upsides? Can somebody explain that question was so obvious and i highlighted it when i was doing the live coverage of the report that it was last not once but twice consecutively in the life questions at the end of the earnings call and palantir completely flat out dodged.

The question and refused to answer it: they talked about something completely irrelevant. They even said that q2 revenue is even hard to forecast because well you know we have to wait for the numbers to come through. There's a lot of uncertainty for a company that deals with data that deals with analytics and forecasting, and you know the industry leading analytical capability. That seems somewhat hard to agree with, given that we are, you know, halfway through q2 already, so that answer just didn't smell good to me and they then relatively abruptly ended the q a session after refusing to answer those questions, perhaps the worst bit, though, for me, Was the constant reference to a potential nuclear war, a potential world war, the biggest war in europe since world war ii? All of that stuff just kept hammering on on and on and on throughout the presentation? And then afterwards, alex carr published a letter just before going live where he goes on and on about it again, so the sort of context as i'm reading it based on this stuff that they were saying, is hey guys.

There is a huge threat of a disastrous war, the worst war imaginable. Lots of people are going to die, but you know we're guessing that because we provide the software that helps governments in a time of war when they need to make important military decisions that we are going to collect a huge load of money from this. And this is a great thing, we're not sure exactly how or when, but this is what we've been waiting for for 20 years. This is great news by the way, not my words.

This is literally how alex carp ends his shareholder letter, but earlier on in the letter in between taking talking a lot about how the war is great for business, he takes this amazing opportunity to go and insult his customers. He says our most recent efforts to expand our sales team continues, both in the united states and around the world. You know that bid is good, but then he says, but attention persists between a customer's understanding of their knees today and our view of what they will need tomorrow. So, according to alex carp, palancius customers are so incredibly dumb, so incredibly stupid that they just don't understand their business.

They don't understand the direction that they are heading in. They don't understand the direction they should be in, or maybe you know what tomorrow is going to bring to their business. No only palancia really knows, and there is a tension between palancia really knowing and all these dumb customers having no idea because our organizational and operational culture remains one of the most differentiated and unique among technology companies in the world today. Now i do appreciate that apparently, i've built some incredibly good software, extremely good software, that many government organizations in particular and the military find really useful.

But the incessant patting yourself on the back the non-stop praising how awesome you are and how bad everybody else is how everyone else sucks is maybe not the best way to present a growth company that is yet to show can turn a gap profit together with a Sales pitch of a costly earnings score that was an absolute disaster that caused a complete destruction, the share price. It really does some major questions for investors. If you found this video useful, please don't forget the smash 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, you.