PayPal And Palantir Both Took The AI Plunge But Reactions Were Different

Two companies that were both partly founded by Peter Thiel reported their first quarter results, namely PayPal Holdings Inc (NASDAQ: PYPL) and Palantir Technologies Inc (NYSE: PLTR). Palantir shares catapulted on Tuesday after CEO outlined plans to capitalize AI boost, while PayPal increased its outlook for the year but its increased profitability was mostly the result of cost cutting, including staff cuts.

PayPal’s Raised Profit Expectations Were Eclipsed By Adjusted Margin Guidance

With its first quarter results, PayPal was able to beat estimates on both lines. The revenue beat was not very meaningful but the 9% YoY growth was pleasing as the posted revenue amounted to $7.04 billion. The earnings beat was sizeable as first quarter profit amounted to $795 million, a net income of 70 cents per share with adjusted earnings being $1.17 per share. Despite the fact PayPal’s trajectory weakened compared to the pandemic boom that fueled online transactions, PayPal still showed solid business growth despite the e-commerce spending slowdown, as well as intensified competition in the digital payments field.

Outlook

Fortunately for PayPal, there seems to be plenty of room and potential in the digital payments space. Last year, online sales made only 15% of retail sales and that figure is expected to grow to 22% by 2025. PayPal raised its full year guidance despite the not so strong second quarter guidance. Yet, it did it by less than the market had anticipated, with a large part of the increased profitability coming from cutting staff and other costs. For the undergoing June quarter, PayPal expects EPS in the range between $1.15 to $1.17 while full-year earnings are guided at $4.95 per share.

Full year adjusted operating margin is expected to expand 100 basis points, downsized after the prior forecast of 125-basis points growth.

Palantir Reported Strong Quarter

For the period ended on March 31st, Palantir’s revenue expanded 18% to $525 million while adjusted earnings amounted to 5 cents. On Monday after market close, Palantir reported it earned a GAAP net income of $17 million on the back of government revenue rising 20% to $289 million, which was in line with estimates, and commercial revenue from the private sector, that makes up about 40% of its total revenue, and that rose 15% to $236 million,topping expectations of 217 million, according to Investor’s Business Daily.

Outlook

The maker of data analytics software gave a relentlessly bright outlook as it included AI power into its projections. For the undergoing June quarter, Palantir guided for revenue of $530 million, below estimates of $537 million.

AI Demand Is Without Precedent

Chief Executive Alex Karp believes the software maker is well-positioned to capitalize on AI developments, stating that the engagement and demand for the new AI Platform is without precedent, as the company works its way to convert this demand into an expanded reach.  First iteration will be available to selected customers as early as this month.

Palantir’s Bright Outlook Possibly Dimmed By Its Dependence On Government Work

A cloud over Palantir that could dim Palantir’s bright AI-owed prospects is the fact that despite its conscious effort to diversify its business across health care, energy and manufacturing sectors, government agencies still account for almost 60% of its revenue. This is no longer a stable revenue stream as it used to be, considering Congress’ recent spending cuts initiatives.

Different Stock Reactions

Year to date and heading into the latest reported, Palantir stock rose 15% in 2023. On the other hand, PayPal tumbled 12% upon the report on Tuesday despite solid results and most likely due to a cut outlook for the adjusted operating margin.

DISCLAIMER: This content is for informational purposes only. It is not intended as investing advice.

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