Stock Analysis: Palantir Technologies (PLTR)

Hamzah Yacoobali, The London School of Economics and Political Science

Overview

Palantir founded by Peter Thiel who, ‘build software that empowers organisations to effectively integrate their data, decisions, and operations’, started trading last year at $9.50 USD – price less than half of what it is currently. At it’s peak it had climbed 300% in just 4 months from the IPO in September of 2020 to $39. A year later and now the stock price is $26.34. What made this possible? What do they do? More importantly can the stock expect to reach the high $30 prices soon?

Analysis

Data analytics software company Palantir  has built its business with customers in the largest defence industry institutions like the U.S. Army, U.S. Navy, and CIA, as well as, companies like IBM, Amazon, and Airbus. The company reported a 49 percent revenue growth for the first quarter of this year. Palantir reportedly had 149 customers in both the government and commercial segments in May. The three main segments are diverse and provide a range of services for those of different needs. The commercial is the most varied, Palantir Foundry, is used in various industries, including consumer, energy, financial services, healthcare, industrials, telecommunications, and transportation. Having this diverse base is essential to obtain as many customers as possible which therefore leads to be profitable.

  • Revenue for Q2 is $365.4 million up from $341 million in Q1.
  • Total operating expenses: $430.6 million in Q2.

At first sight to those with limited knowledge in the modern business operations sector will consider a net loss to be alarming. This however is not the case for many large businesses. Of the total expenses, R&D and marketing equates to under $272.903 million. This is significant in terms of the level of reinvestment taking place, the money coming in is being put to use in a productive manner, not just to sit around but rather to level up and continue the business expansion to provide their services to a larger audience.

That being said there is some consideration that one should make when looking at the figures. Traditional investors will look at the numbers and say that you should steer clear with emphasis, the losses are apparently accelerating, the outstanding shares are being heavily diluted and their costs are rising faster than their revenues… so who in their right mind would want to invest in a company like this?

Palantir has a very complex share ownership structure compared to the average company, without going deep into it it should be stated that as with all implementations, there are reasons behind it. Part of the reason for this is that Palantir reward senior management and all the staff with company stock, this has been occurring for a prolonged amount of time before they went public and that’s now transpiring into those options being exercised. This is a good thing, when you hire smart and effective people then give them a big future incentive based on long-term performance outcomes, great things can occur, Tesla being the prime example.

CONCLUSION

A year after it’s IPO Palantir continues to post double-digit sales growth and is expected to be profitable this annum. The software maker aims to expand its commercial business, since government institutions are the main clients driving their growth. Losses are high and continue to increase but signal reinvestment.

Greater numbers of contracts being signed is a positive indication for the future, in conjunction with the fact that, contracts are lasting approximately 3.9 years on average. Observe this stock for the forecasts can easily to come to fruition.

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