Palantir Sinks After Earnings as Analysts Point to Slowdown in Total Contract Value

Palantir shares fell after the software company released its third-quarter earnings report. Analysts pointed to signs of a slowdown in total contract value and other forward-looking indicators.

Palantir stock lost 1.65% on Tuesday following the report. The shares had faced steeper losses during early trading before recovering somewhat through the day.

Despite the stock decline, the company reported that its U.S. commercial revenue surpassed its government revenue for the first time. U.S. commercial revenue jumped 148% to $984 million, while U.S. government revenue grew 96% to $953 million. Overall revenue nearly doubled from the previous year and crossed $2 billion for the first time, reaching $2.31 billion to beat Wall Street estimates. Net income more than doubled to $1.13 billion, or 44 cents per share.

However, the software company closed $1.5 billion in total contract value within the U.S. commercial segment, which was up 11% compared to the previous year. That growth rate slowed down from the second quarter, when Palantir closed a record $2.1 billion in total contract value in the segment, representing a 153% increase from the prior year.

A note from Piper Sandler published on Monday stated that investors will look for evidence in later quarters to determine whether the 11% growth rate is merely a fluke of contract duration rather than a structural issue. The Piper Sandler analysts added that they believe demand for Palantir's solutions still outweighs supply.

Goldman Sachs analysts noted in a Tuesday note that Palantir attributed part of the shift to shorter contract durations. The Goldman Sachs analysts wrote that the key will be converting those shorter contracts into longer commitments, something Palantir has done successfully in the past.

CEO Alex Karp told CNBC that he believes no company has achieved consistent results like this in the history of software artificial intelligence, adding that the business succeeds without a traditional sales team. Palantir raised its full-year guidance and now expects U.S. commercial revenue to exceed $3.56 billion.

Summary

Palantir's overall revenue and earnings beat expectations, driven by strong growth in its U.S. commercial artificial intelligence business. However, a slower growth rate in total contract value and shorter contract durations raised questions among analysts about future booking momentum.