Palantir (PLTR)

Palantir (PLTR)

Is Palantir stock a good buy?

In this article, we review Palantir stock to determine if it’s a good buy, sell, or hold.

Palantir Technologies is a software company that specializes in big data analytics. They were founded in 2003 and are Headquartered in Denver, Colorado. They have about 2,500 employees in office locations located in the US, UK, Germany, Denmark, United Arab Emirates, Norway, France, Sweden, Israel, Switzerland, Australia, and Japan.

Tykr Rating

  • Summary: On Sale
  • Score: 12/20
  • MOS: 80%
  • Share Price: $7
  • Sticker Price: $36

Palantir News

The latest earnings report on Palantir did not do any favors for this company. The stock dropped by over 20% in one day.

This article from finance.yahoo.com breaks down why.

Good News

  • Total revenue grew 31% year-over-year to $446 million
  • Commercial revenue grew 54% year-over-year
  • US commercial revenue grew 136% year-over-year
  • Government revenue grew 16% year-over-year
  • Customer count grew 86% year-over-year
  • Quarterly revenue beat expectations by .64%

Bad News

  • EPS was expected to be $.04 but reported at $.02. This miss is what caused the stock to tank. The reason is, Palantir is hiring more salespeople to accelerate growth. More employees mean more overhead expenses and less profit.

This article from finance.yahoo.com states that Palantir expects to see US commercial revenue double for the third time in a row. It’s great to see US commercial revenue continues to grow but they need to find a way to expand commercial revenue outside the US.

This video from Youtuber, Sasha Yanshin, gave some tough love to this company that shareholders should pay attention to. Here is a quick summary.

  • Government revenue is slowing and commercial revenue is not picking up fast enough to meet expectations. 
  • When Palantir works with new customers, they aren’t highly profitable in year one due to the heavy labor costs required with onboarding. As customers stay, they become more profitable in years two, three, and beyond. The problem that Sasha points out is that Palantir’s customers are actually becoming less profitable over time than expected. 
  • In the most recent earnings report, they removed some charts to give the perception the company is moving in the right direction. This lack of transparency is a red flag.
  • Alex Karp talked about profiting from world conflicts such as Russia and Ukraine which as Sasha stated, is nothing to be proud of. Points like this should be left completely out of presentations. If you make money from world conflicts, that’s fine but that should not be your purpose. 
  • There is a comment that Alex Karp made that says “A tension persists between a customer’s understanding of their needs today, and our view of what they will need tomorrow.” One of the biggest principles of building a successful company is listening to your customer. This comment from Alex Karp tells shareholders Palantir is not listening to their customer. In other words, they are trying to tell their customer what they want which is not how you conduct business.
  • The earnings report continued to boast about how good Palantir is and how bad everyone else is. What they should have done is lead with some humility and address the obvious points such as the EPS miss, the slowing government growth, what they plan on doing about it, and their expansion to the SMB (Small and Mid-Sized business market) which is a revenue segment a lot of investors want to see.

Palantir Company History

  • Palantir was founded by Peter Thiel, Nathan Gettings, Joe Lonsdale, Stephen Cohen, and Alex Karp. Peter Thiel was a co-founder of PayPal and the first VC investor in Facebook. Some other notable investments he’s made include Stripe, SpaceX, Airbnb, Asana, Spotify, Twilio, Oculus, and more. Nathan Gettings is the CEO of RoboteX, a company that makes scouting robots for the military and law enforcement. Joe Lonsdale is a VC investor in companies including Asana, Flexport, Hive, Oculus, Wish, and more. Stephen Cohen currently serves as President, Secretary, and Director of Palantir. Alex Karp currently serves as CEO.
  • Palantir was originally created by Thiel, Gettings, Lonsdale, and Cohen to help reduce fraud for PayPal. Prior to the year 2000, the fraud rate at PayPal was over 1% which is considered extremely high. In fact, the fraud rate was so high at PayPal that Visa was threatening to shut PayPal down. With this new technology developed by Thiel and his team, they were able to drop that percentage down to .55% at the end of 2000 and by the end of 2001 they were able to drop that down to .37% which was considered to be the best in the industry at the time. 
  • Although Karp was not an original creator of Palantir, he was brought in to lead as CEO partially because of his philosophy background. He went to school at Stanford where he became friends with Thiel. He then went on to obtain a Ph.D. in German social philosophy from the University of Frankfurt. With his philosophy education he started getting involved with charitable causes after school which allowed him to connect with leaders within global intelligence and defense institutions. These connections led to early projects with government organizations which also helped solidify the long-term growth. 
  • Palantir had trouble finding initial investors. According to Karp, Sequoia Capital chairman Michael Moritz doodled through an entire meeting, and a Kleiner Perkins executive lectured the founders about the inevitable failure of the company. The only early investments were $2 million from the U.S. Central Intelligence Agency’s venture capital arm In-Q-Tel, and $30 million from Thiel himself and his VC firm, Founders Fund.
  • The company’s name is derived from The Lord of the Rings where the magical palantíri were “seeing-stones,” described as indestructible balls of crystal used for communication and to see events in other parts of the world.
  • Palantir has been labeled controversial. One reason, the tech was used by the US government to locate Osama bin Laden. Another reason, Palantir has come under criticism due to its partnership developing software for US Immigration and Customs Enforcement. Palantir has responded that its software is not used to facilitate deportations. In summary, as long as Palantir continues to serve the US Government and its allies, it will be perceived as controversial. 

Palantir Business Model

Palantir is considered an enterprise B2B SaaS. Enterprise SaaS is highly lucrative and sticky. Contracts can be signed for sometimes as long as 7 to 10 years and those contracts can cost hundreds of thousands on up to millions of dollars per year.

Palantir has three different products including Foundry, Gotham, and Apollo.

Foundry – Commercial Customers

Foundry is a product that serves commercial customers or in other words, enterprise customers. Foundry is used to build safer cars, secure global supply chains, accelerate cancer research, and more. Some of the industries that use Foundry include anti-money laundering, energy, supply chain, and healthcare. Their customers include Merck, Airbus, and Ferrari, Morgan Stanley, Fiat Chrysler, and more.

Gotham – Government Customers

Gotham is a product that serves government customers. Gotham is used by the US government and its allies. Their customers include DHS, NSA, FBI, CDC, the US Marine Corps, the US Air Force, Special Operations Command, West Point, and the US Army.

Apollo

Palantir Apollo is a continuous delivery system that manages and deploys Gotham and Foundry. Apollo was built out of the need for customers to use multiple public and private cloud platforms as part of their infrastructure. Apollo orchestrates updates to configurations and software in the Foundry and Gotham platforms using a micro-service architecture. In other words, Apollo allows Palantir to provide software as a service (SaaS) rather than to operate as a consulting company. This is a critical platform that empowers Palantir to scale.

Palantir Competition

Palantir (PLTR)

  • Summary: On Sale
  • Score: 12/20
  • MOS: 80%
  • Share Price: $7
  • Sticker Price: $36
  • Revenue: $1.54B

Alteryx (AYX)

  • Summary: Overpriced
  • Score: 3/20
  • MOS: 1%
  • Share Price: $56
  • Sticker Price: $56
  • Revenue: $536M

Snowflake (SNOW)

  • Summary: Watch
  • Score: 11/20
  • MOS: 1%
  • Share Price: $143
  • Sticker Price: $145
  • Revenue: $1.2B

Datadog (DDOG)

  • Summary: On Sale
  • Score: 13/20
  • MOS: 80%
  • Share Price: $98
  • Sticker Price: $494
  • Revenue: $1B

Splunk (SPLK)

  • Summary: Overpriced
  • Score: 5/20
  • MOS: 1%
  • Share Price: $94
  • Sticker Price: $95
  • Revenue: $2.67B

Palantir 4 Ms

Now let’s take a look at the 4 M’s. A wise investor should always look past the numbers and look at the business.

MOS: Palantir is a relatively new IPO (September of 2020) and the stock has an On Sale rating within Tykr. This is very rare. Most stocks that have gone public in the last 12 – 24 months have weaker financials and will show up in Tykr is Overpriced or Watch. The score of 12/20 is pretty good but the MOS of 80% emphasizes the upside potential of the stock. 

Meaning: Data analytics is a great place to be. Government organizations and companies are always looking for ways to improve efficiencies and the best way to do that is through the analysis of data. Although commercial revenue is growing, it’ll be important for Palantir to find a way to serve the SMB market. If I were working at Palantir, I would find a company that already serves the SMB market, establish a strategic partnership, and introduce a lower-cost Plantir SaaS product to serve this audience. This is a great way to increase the customer count and trigger expansion revenue which means Palantir can sell other products, provide more value, and generate more revenue from each customer.

Moat: There are a few competitors in this space that may limit commercial revenue growth. Two of the strongest competitors include Snowflake and Datadog. Snowflake serves larger companies including jetBlue, Anthem, Doordash, CapitalOne, and Western Union. Datadog serves both large companies and SMBs. Some of Datadog’s customers include Shell, Siemens, Whole Foods, Samsung, SoFi, Deloitte, Lego, Sony, Plaid, and Dreamworks. This goes back to the Meaning, that Palantir needs to find a way to break into the SMB market like Datadog. Serving both large corporations and SMBs creates significantly more growth opportunities. 

Management: I’ve respected Alex Karp’s vision for the company but based on the latest earnings report, that respect is starting to slip. That lack of humility about missing earnings targets, the boastful language about how good they are, and the points about making money from world conflicts are all red flags to me. At the end of this article, I mention how I’m treating this stock.

Palantir Financials

Now let’s take a look at the financials to get us closer to determining if Palantir stock is a good buy. A wise investor should be able to read the income statement, cash flow statement, and balance sheet and within 60 seconds have a pretty good idea of how the business is performing.

Revenue (Found on the Income Statement)

  • 2018: $595M
  • 2019: $742M
  • 2020: $1B
  • 2021: $1.5B
  • Revenue has consistently increased year over year which is a great sign.

Net Income (Found on the Income Statement)

  • 2018: -$580M
  • 2019: -$579M
  • 2020: -$1.1B
  • 2021: -$520M
  • Net Income has improved since 2020 which is a great sign.

EPS (Found on the Income Statement)

  • 2018: -.84
  • 2019: -.42
  • 2020: -1.19
  • 2021: -.26
  • EPS has improved as well which is a good sign.

Free Cash Flow (Found on the Cash Flow Statement)

  • 2018: -$52M
  • 2019: -$178M
  • 2020: -$308M
  • 2021: $321M
  • Free Cash Flow has improved which is a good sign.

Total Assets (Found on the Balance Sheet)

  • 2018: $1.4B
  • 2019: $1.5B
  • 2020: $2.6B
  • 2021: $3.2B
  • Total Assets have consistently increased which is a great sign.

Total Liabilities (Found on the Balance Sheet)

  • 2018: $3.1B
  • 2019: $3.5B
  • 2020: $1.1B
  • 2021: $956M
  • Total Liabilities have decreased which is a great sign.

Total Debt (Found on the Balance Sheet)

  • 2018: $0
  • 2019: $396M
  • 2020: $427M
  • 2021: $260M
  • Total Debt has decreased which is a great sign.

Total Equity (Found on the Balance Sheet)

  • 2018: -$1.7B
  • 2019: -$1.9B
  • 2020: $1.5B
  • 2021: $2.2B
  • Total Equity has significantly increased. This is a great sign.

I’m a long-term Palantir investor but at this time, I’m going to turn my attention to other stocks. To clarify, if I buy more shares, it won’t be as heavily allocated as other stocks in my portfolio. The latest earnings report turned me off. I need to see some improvements with the EPS. I also want to hear how they will serve the SMB market. Most importantly, I need to see a little more humility in earnings reports from Alex Karp. If your stock keeps dropping, don’t brag about how good you are, address the problem directly. Acknowledge the stock has fallen off a cliff, explain why, and explain how you plan on fixing it. At this time, I’m not seeing or hearing this which means my other stocks will not get a little more attention.

The Summary, Score, and MOS of this stock may have changed since the posting of this review. Please login to Tykr to see up-to-date information.

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