Palantir (PLTR)

Palantir (PLTR)

Summary: On Sale

Score: 12/20

MOS: 80%

Share Price: $20

Sticker Price: $103

Is Palantir stock a good buy?

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.

 

Interesting Facts

  • 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 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

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

Palantir Gotham is used by counter-terrorism analysts at offices in the United States Intelligence Community and United States Department of Defense. 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.

 

Latest News

This article from seekingalpha.com states the price target is moved to $53 but investors must be patient. This article emphasizes the fact that Palantir is an enterprise SaaS serving government organizations and large institutions. Both of which are highly lucrative.

This article from finance.yahoo.com states that  investors should consider buying the dip in Palantir. This article says that more companies are using Palantir because of the increasing demand for data management and security. Investors should pay attention to companies that provide data analytics products and services.

This article from defensenews.com states the US Army has awarded Palantir an $823M contract to enable intelligence data fabric and analytics as part of an effort to modernize legacy battlefield intelligence systems.

This article from fool.com states 3 reasons Palantir’s future looks bright. 1. Data is growing exponentially. According to IBM, 90% of the entire worlds’ data has been generated in the past 2 years. Companies need help organizing and using that data to improve sales, marketing, and operations. 2. Palantir’s Gotham product has proven to be highly successful with military applications and now that product is expanding to other industries including healthcare. 3. The private sector has a long runway. Bankers and insurers turn to Palantir to detect money laundering and fraud. Automotive manufacturers are using Palantir to trace defects. Aviation companies are using Palantir to simplify supply chains to reduce costs.

This article from finance.yahoo.com says ignore the bearish noise and invest in Palantir. Government contracts still remain the bulk of Palantir’s revenue but the commercial business is starting to gain more traction. This is where investors should keep their long-term focus.

Speaking of commercial customers, here are a few notable projects that will give you an idea of how Palantir is helping other companies.

AWS

Palatir’s Foundry is being used with Amazon AWS products including Amazon Simple Storage Service (Amazon S3), Amazon Elastic Compute Cloud (Amazon EC2), and AWS Key Management Service (AWS KMS). The collaboration between Palantir and AWS is helping power operations at the world’s leading organizations which includes accelerating clinical research and powering vaccine supply chains to improving the safety and reliability of the electric grid.

Sanofi

One of the world’s leading pharmaceutical companies, has used Foundry to provide core data infrastructure and an analytical platform. This has allowed Sanofi to receive a 2020 Gartner Healthcare and Life Sciences Eye on Innovation Award for this work.

BP

BP and Palantir have extended their partnership to support BP as it works towards its ambition to become a net zero company by 2050 or sooner, and to help the world get to net zero.

 

Competitive Comparison

Palantir (PLTR)

Summary: On Sale

Score: 12/20

MOS: 80%

Share Price: $20

Sticker Price: $103

Revenue: $1B

 

Alteryx (AYX)

Summary: Overpriced

Score: 7/20

MOS: 1%

Share Price: $62

Sticker Price: $62

Revenue: $495M

 

Snowflake (SNOW)

Summary: Watch

Score: 12/20

MOS: 1%

Share Price: $343

Sticker Price: $347

Revenue: $592M

 

Datadog (DDOG)

Summary: Watch

Score: 10/20

MOS: 41%

Share Price: $179

Sticker Price: $305

Revenue: $603

 

Splunk (SPLK)

Summary: Overpriced

Score: 4/20

MOS: 1%

Share Price: $124

Sticker Price: $126

Revenue: $2.2B

Palantir’s revenue is higher than most of the competitors but the share price is much lower. This is worth paying attention to. When the next annual report is released, and if the Revenue and EPS are reported higher than estimates, this stock could take off.

 

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: As emphasized within the article above, analyzing data is in high demand and will continue to be in high demand over the next 10 years. Palantir is perfectly positioned to continue to serve the US Government and its allies and it’s important to note the expansion on the commercial side. In fact, the commercial side has significant upside potential that is worth paying attention to.

Moat: Should Palantir fear the competition or should the competition fear Palantir? Here is why the ladder may be the truth. Snowflake, Alteryx, Datadog, and Splunk are all great companies but they all lack one thing, government contracts. Doing business with the government is very difficult. Karp was able to do this based on his early days shaking hands with the right people but the reality is most of Palantir’s customers will not obtain these types of customers. Government contracts are hard to break into but they are very sticky. An organization such as the US Army is not going to try a product for a few months and move on. They will do their due diligence, which can sometimes require a year or longer, but when the deal is made, the contract can sustain for close to a decade or longer. This means that Palantir will most likely generate incredible revenue from the public sector alone. Overall, they have the public sector cornered with the Gotham product. When it comes to the private sector with the Foundry product, that is where we see massive update potential. As Palantir continues to obtain impressive testimonials from its commercial clients, Palantir will continue to expand this side of the business and capture more market share. As investors, we’re just witnessing the beginning of this expansion.

Management: Alex Karp has a unique background as CEO. He hasn’t built and sold previous businesses but he has done a nice job building Palantir over the last 18 years. In the beginning, he accepted the fact that obtaining traction is slow and steady. In fact, most people probably haven’t heard of Palantir until the IPO in September of 2020. Now, as the product lines have matured and they’ve obtained significant market share in the public sector, the company is starting to become a household name. One thing that Karp has done well is build relationships with the right people which includes the original creators as well as government leaders. Karp has also did a good job addressing controversial matters. In fact, he’s not afraid to address those matters head on. This article from cnbc.com quotes Karp saying companies working with US adversaries should justify their position. A bold statement like this caused volatility with the stock but he doesn’t care. He’s standing up for what he believes is right no matter if the share price takes a hit. It’s important to follow leaders that stand up for what they believe in, no matter the result. This is a quality that’s worth paying attention to.

 

Financials

Now let’s take a look at the financials. 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.

Palantir has 3 years of historical data which is enough for Tykr to analyze the stock. Keep in mind, some IPOs (within the last 12 – 24 months) have only released 1 or 2 years of data which results in those stocks not showing up in Tykr.

Revenue (Found on the Income Statement)

2018:  $595M

2019:  $742M

2020:  $1B

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

Net Income has decreased in 2020 but over the last 4 quarters of 2021, the Net Income has significantly increased. We should expect the Net Income on the 2021 annual report to be much better.

 

EPS (Found on the Income Statement)

2018:  -.43

2019:  -.42

2020:  -.84

EPS has decreased in 2020 but similar to the last 4 quarters of the Net Income, the EPS has also increased. 

 

Free Cash Flow (Found on the Cash Flow Statement)

2018:  -$52M

2019:  -$178M

2020:  -$308M

Free Cash Flow has significantly declined. This shows Palantir is spending a lot of cash, most likely on sales, marketing, and product development. We would like to see free cash flow move closer to a positive number.

 

Total Assets (Found on the Balance Sheet)

2018:  $1.4B

2019:  $1.5B

2020:  $2.6B

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

Total Liabilities have decreased which is a great sign.

 

Total Debt (Found on the Balance Sheet)

2018:  $0

2019:  $396M

2020:  $197M

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

Total Equity has significantly increased. This is a great sign.

Overall, the balance sheet is very impressive. When the next annual report is released, we would like to see improvements to the income statement and cash flow statement. When it comes to the meaning, we know data analytics is in high demand. Enterprise SaaS is an excellent business model and Palantir has been able to capitalize on both the public and private sectors with significant upside potential on the private sector. With the moat, they’ve already secured a stronghold with government contracts and now they are starting to gain some traction with commercial contracts. With the management, Karp is a great fit for Palantir. Even with ongoing controversy, Karp hasn’t said or done anything extreme to cause massive impact on sales or the share price. He has the potential to lead this company well into the future.

If you’re looking for a stock with a relatively low share price, Palantir may be worth a look. Keep in mind, this stock should not be looked at as a short-term profit but more of a long-term hold.  

To provide context, Facebook took about 18 months to start taking off which is considered fast whereas both Tesla and Netflix took about 10 years.

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.