Cornerstone, Go to company page All of this is to make an even more important point today. Palantir can implement solutions quickly. Palantir remains deeply unprofitable, and its constantly diluting its shares with high stock-based compensation. Due to the nascent industry landscape and a primer to further deeper research, the multiples used will not be the derived mean/median values but rather on what was mentioned above (60x). The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com, Palantir Is Forming a Pattern That Bullish Investors Should Love, VW US CEO: Customer reaction to ID.4 EV 'has been incredible,' with 20K on backorder, Oil Flipflops as US Growth Fears Counter Chinas Growth Outlook, UPDATE 1-NASA awards $425 mln to Boeing for fuel-efficient airliner research project, EU drug regulator has not seen signal of possible Pfizer COVID shot stroke link, David Rubenstein says the Fed will settle for 'tolerable' 3% inflation, doesn't see imminent recession. For now, I'm allowing PLTR some room, given their strong value proposition, sticky products and of course their tremendous growth story. COO Sankar said, We have a very unique opportunity and a diverse footprint that we believe continues to uniquely position us deliver on the necessary transformation in healthcare delivery from operational excellence to complex clinical care.. Palantir has several positives that aren't even disputed by most bulls, e.g. In the last quarter, Palantir reported a 37% year-over-year (YOY) increase in commercial revenue. Today, Palantir trades at $22, for a $42 billion market capitalization. MULN Stock Alert: Does Mullen Have 3,000 Preorders For Its FIVE EV? The Investment Community where "Cash Flow is King". Actual performance may differ significantly from backtested performance. Please disable your ad-blocker and refresh. All rights reserved. reduce the number of new stock options that are awarded to execs and employees. One bearish argument against Palantir continues to be the companys reliance on government contracts. I do much more than just articles at Cash Flow Kingdom: Members get access to model portfolios, regular updates, a chat room, and more. Moreover, Palantir works with both the government as well as the commercial front, which provides its business with a wider moat. As costs fall and revenues rise, its quality score will improve. According to Tipranks, Jonathan is among the top 0.5% of bloggers (as of January 10, 2022: https://www.tipranks.com/bloggers/jonathan-weber). This is, to a significant degree, done through share awards and stock options. I remain bullish. I have no business relationship with any company whose stock is mentioned in this article. Its opportunities include leveraging its anti-money laundering and know-your-customer expertise. As mentioned above, other tech companies, including FB, GOOG, and Apple (AAPL) have done so, too, and had success with that. This is particularly so as Palantir adds a significant amount of free cash back to its value as stock-based compensation is considered as a non-cash expense, and the company has been issuing out stock-based compensation of up to 50% of its revenue (as seen in FY21E). Overall, PLTR remains a stock I like, despite its high valuation, mainly due to its strong moat and multi-decade growth runway. Go to company page Plus, there is a 14-day FREE TRIAL. It has a powerful A.I. (See Analysts Top Stocks on TipRanks). That dilution will also prevent Palantir's high valuations from cooling off. So today, I'll take a look at five red flags that might limit Palantir's near-term gains. I looked up other tech stocks' sec filings (SQ, FB, GOOG, etc.) A few of the major drawbacks of Palantir stock are its increasing dilution in the number of shares and the high valuation. Breaking News Nov 28, 2022. So been balls deep in Palantir since it went public in September. A 5% terminal growth is set, due to how nascent the industry landscape is and the enterprise AI domain possesses a large market opportunity. That's why it's often far better to look at it over a period of time. Palantir's stock is also down by 84% from its all-time Today, Palantir trades at $22, for a $42 billion market capitalization. I'm still bullish on Palantir's future, and I believe it can easily achieve its goal of generating at least 30% annual revenue growth from 2021 to 2025. Second, their market cap is $45B not 14.5, which already takes into account the locked shares. But the good news is that Karp was by far the biggest holder of options. A long view is useful for enjoying excellent gains, despite any dilution. In 2004, when we looked at the available technology, we saw products that were too rigid to handle novel problems, and custom systems that took too long to deploy and required too many services to maintain and improve. I noticed that their outstanding shares/market cap has been rapidly going up/diluting since. The mature software stocks trade at a bigger market capitalization and have slower growth. Over the last couple of months, shares mostly traded in the low $20s, which values the company at around $40 billion. If the management allocates corporate capital to the repurchase of over priced stock to offset dilution, then this amounts to a misallocation of corporate capital because there is a significant reduction in corporate capital to be reinvested in OPEX and CAPEX in order to stimulate growth. The results reflect performance of a strategy not historically offered to investors and does not represent returns that any investor actually attained. Changes in these assumptions may have a material impact on the backtested returns presented. In FY2020, its revenue grew 47%. After all, PLTR didn't move much at first, then it exploded in value, then it went higher, then it settled down into the $20 to $30 range. It should also benefit from the growing need for real-time data, and remain a top play on the expanding AI market. At the rate from the first quarter, this would take a little more than 2 years, and due to business growth, it seems likely that cash flows will increase instead of decline going forward, so the $5 billion net cash position could be hit earlier. However, this secretive software firm that Palantir scores a 41/100 on quality. There is, however, also another possibility. quotes delayed at least 15 minutes, all others at least 20 minutes. Since then, it has fallen to trade at $18-$19 levels. The truth probably lies somewhere in between. Public comparables has been identified and analysed, where Palantir is compared across (1) systems integrators, (2) high growth Software as a Service (SaaS) companies, and (3) data mining and visualization companies across different industry verticals. It is, of course, possible that their models are wrong and do either overvalue or undervalue Palantir, but as a base case, it makes sense to assume that shares do not trade too far from fair value right now. Enter your email to receive our newsletter. I'll have to review this more closely in a future article. Palantir stock has been heavily diluted since it went public in a 2020 direct listing. The company has an admirable competitive position in providing data services to Federal agencies, but is diluting itself through share-based compensation. Since going public, Palantir has increased its number of shares outstanding by 108%. Subscribe to Yahoo Finance Plus to view Fair Value for PLTR, Mizuho analyst Matthew Broome initiated coverage on Palantir Technologies Inc (NYSE: PLTR) with a Neutral rating and a price target of $7. Financial Market Data powered by FinancialContent Services, Inc. All rights reserved. Disclosure: I/we have a beneficial long position in the shares of PLTR, FB, GOOG either through stock ownership, options, or other derivatives. And the companys overall revenue was up 36% YOY at $392 million. Disclaimer: This initiated report is only a primer version it does not conduct a deep dive in the software-infrastructure technology market segment, but to incorporate managements overall guidance and analyse the companys operational structure to determine the fair value of the company. Third, I show how strong growth can adequately compensate for share dilution, at least over longer periods of time; patience is required. There are thus many reasons to like the company, but it should be noted that the company's shares are already pricing in a lot of future growth. Investors can thus not expect that Palantir will stop the share count dilution completely any time soon. Lets take a look at their Government and Commercial business. (3)A quick transition into selling modular solution so that they are able to stack SaaS pricing and onboard more customers that arent willing to fork out a huge initial amount for the companys solutions. Within the first nine months of 2021, the companys number of weighted average shares has increased by 165% year-over-year. If we look back at Palantir's history, the company has actually never been profitable since its inception 18 years ago. That being said, I think it's still important for bullish investors to recognize Palantir's weaknesses. The DCF valuation employs the Free Cash Flow to the Firm (FCFF) methodology to arrive at the intrinsic value of the company. It also announced it would accept payment in. I love investing and business, and I also greatly enjoy working with amazing people. This poses a question; Is the market mispricing Palantirs growth story or has the market priced in additional setbacks of Palantir such as huge dilution in Palantirs stock-based compensation, a low probability to suppress its margins as the company seeks to expand and increase its top line revenue growth, and most importantly, the inability to consistently hit its 30% y-o-y revenue growth target? I have no business relationship with any company whose stock is mentioned in this article. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. Bears say its close association with the United States government, along with an executive compensation structure that has caused share dilution, make PLTR stock overvalued. At that rate, it will not take very long before PLTR will have a share count north of 2 billion, although it should be noted that the growth rate has slowed down to some degree. Further, Palantirs cost structure will also reflect a decreasing cost (s) as a % of revenue such as COGS, S&M, G&A, R&D and stock-based compensation (Fig 2) tying in line with Palantirs growth story as the company looks to become more cost-efficient and turn profitable by FY2527. So I contributing author for InvestorPlace.com and numerous other financial sites. Palantir, which builds data analysis software for government agencies and large corporations, said on Monday that it has 2.17 billion diluted shares. I sold a third of my position at the time to take out my original investment, then held on to the rest as Palantir's stock tumbled back to the high teens. (New pick just posted.). Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article. However, I need to point out a few things. The only thing that will happen is that is that insiders (employees and private equity investors) will be able to sell their shares once the lock up ends. Nevertheless, 287% is still quite robust. Still, that valuation comparison is not fair. These options were set to expire on Dec. 3, 2021. Cost of debt is calculated by taking the blended average on the lease debt taken by Palantir (6.35%) and credit facilities (2.75%) and adding the 10-year risk free rate. Further, the new equity value will be divided across the new total number of shares, representing the true fair value per share of the company (Fig 7). Raytheon Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. PLTR is an attractive high-growth pick with a huge moat that is active in an industry that could grow for many years to come. If Palantir was growing its government side of the business at the exclusion of its commercial side, it would be concerning. When they realize how big an ROI Palantirs solutions offer, related government agencies will try Palantirs products. This suggests the stock has no near-term upside. He shares his stock picks so readers get original insight that helps improve investment returns. Last but not least, the share price gets influenced positively thanks to the impact on the supply-demand situation of shares on the market. I have no business relationship with any company whose stock is mentioned in this article. Palantir shares slipped after posting Q3 results, as investors expected more. Article printed from InvestorPlace Media, https://investorplace.com/2021/11/palantir-might-be-worth-the-buy-for-patient-investors/. Second, I use several examples to show how share dilution is frustrating but not deadly for investors. Palantir strikes me as a company thats not necessarily going to do what investors expect. Price as of January 18, 2023, 1:25 p.m. Currency in USD Follow 2W 10W 9M 6.96 -0.05 (-0.71%) At close: January 13 04:00PM EST 6.94 -0.02 (-0.29%) Third, there's a good reason for SBC and therefore share dilution. Nevertheless, PLTR is forecasted to grow like crazy as I've already demonstrated above. Since going public as a direct listing in 2020. ) Leo Sun owns C3.ai, Inc. and Palantir Technologies Inc. SBC and share dilution are annoying. So while there will likely continue to be some selling in the next few years, investors may have to find something else to object to. The U.S. Immigration and Customs Enforcement (ICE) department also uses it to track down and deport undocumented immigrants. Upon renewal, the amount may increase. All rights reserved. I wrote this article myself, and it expresses my own opinions. It'll work out. Commercial revenue accounted for 44% of the total in Q3. We believe there are no alternatives that can compete on cost, speed, and performance.. MULN Stock Alert: Why Are Investors Suing Mullen Automotive? And as Hake notes, even if investors have to wait two years for the stock to hit that target, they would still get an average annual return of 29.54%. Invest better with The Motley Fool. With the dilution effect accounted for (representing over US$3B in dilution across 246M shares), Palantirs true fair value per share will be priced at US$20.75 via For the bull case, we will assume a 50% y-o-y growth, ceteris paribus resulting in a US$8B/14B revenue in FY25/27 respectively. Further, we also look to account for Palantirs lease liabilities and stock-based compensation that may dilute the current shareholders position and thus cause a further depression in its stock price. Palantir generated $1.09 billion in revenue in 2020, but it posted a whopping net loss of $1.17 billion. Palantir is structured to rob investors and their mission is a lie despite all of Karps fancy language about ontological domains. Share dilution from 244 million at IPO to 1.6 billion. I think it's useful to inspect the narratives. Analyst Report: Palantir Technologies Inc. NYSE - Nasdaq Real Time Price. Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >, Tired of arriving late to the Big Returns Party?. Therefore, to grab on maximum opportunities, Palantir is aggressively maximizing the quality of its products along with building strong sales teams and entering intopartnershipswith large global giants like International Business Machines (IBM). To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. If you want to reach out, you can send a direct message here on Seeking Alpha, or an email to jonathandavidweber@gmail.com. This information is provided for illustrative purposes only. Palantir also generated cash of $210 million from proceeds of stock options being exercised, which naturally boosted its cash position, but which explains the rise in PLTR's share count we have seen earlier in the article. Is this happening to you frequently? for Palantir. Investors can thus not expect that Palantir will stop the share count dilution completely any time soon. Its stock remains expensive relative to its sales, and insiders are still selling more shares than theyre buying. See for yourself. Palantir is, I believe, not a low-risk pick, and one has to be willing to stomach the volatility and to hold shares for a long time to justify buying. These multiples will be carried forward to our sensitivity analysis. If other government agencies follow ICE's lead and adopt RAVEn or develop their own in-house data mining platforms, Palantir's government-facing business -- which already reported decelerating revenue growth over the past two quarters -- could face an unprecedented slowdown. Eng, Go to company page It's my #1 issue with PLTR. The company is an unquestioned leader in the field of big data analytics. Instead, it's a drag. And I can certainly understand if investors might wonder why the company chose to deploy capital in this way as opposed to buying back shares. I am not receiving compensation for it (other than from Seeking Alpha). Palantirs adjusted free cash flow margin of 29% is also an impressive achievement. Second, it's bad but not super bad for PLTR. This is not forgetting the cost structure to remain as per base case projections, thus it is unlikely so since such an upscale in top line revenue will require a relatively larger cost structure to support the operations of the company. That growth, combined with strong margins and cash flow, ought to translate to share price gains despite the friction and grind. As the industry landscape is largely unprofitable, forward EV/EBITDA multiples range in the high numbers from 60x to 200x companies are expected to have >50% y-o-y revenue growth with decreasing operating structures. Best-of-breed growth stock ideas targeting oversized returns. Existing shareholders get diluted, while the execution of stock options, and the selling of awarded shares, can also pressure PLTR's share price from a supply-demand perspective. Firstly, compensation via stock is a great way to incentivize employees through ownership of what they create. If you have an ad-blocker enabled you may be blocked from proceeding. Youre reading a free article with opinions that may differ from The Motley Fools Premium Investing Services. This is almost perfectly in line with the consensus price target of $21.80, thus shares are pretty fairly valued, according to the analyst community. I believe this is why PLTR leadership strongly emphasizes non-GAAP earnings. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. There are also some issues that should not be neglected, however, such as Palantir's valuation and its high SBC. they should be getting. A new tech publication by Start it up (https://medium.com/swlh). On the Stockrover stock grading site, Palantir stock has a fair quality and valuation score. In the first nine months of 2021, its revenue rose 44% year over year to $1.11 billion, while its net loss narrowed from $1.02 billion to $364 million. Due to the fact that a high-growth company also has many This is almost perfectly in line with the consensus price target of $21.80, thus shares are pretty fairly valued, according to the analyst community. With a market cap of $36 billion, Palantir is still valued at 24 times this year's sales. Let's use the same basic approach to look at three more companies. the key issues that some investors have with Palantir is its ongoing stock dilution due to many shares being issued to management and employees, the question of eventual share repurchases could be an important one for Palantir's value creation on a per-share basis. Be the companys reliance on government contracts lie despite All of Karps fancy about! To investors and Does not represent returns that any investor actually attained, Inc. All rights reserved reserved! To trade at $ 22, for a $ 42 billion market capitalization stock Alert: Does have... Actually never been profitable since its inception 18 years ago argument against Palantir continues be! Up 36 % YOY at $ 392 million in an industry that could grow many... An even more important point today remains a stock i like, any! Would be concerning dilution in the field palantir share dilution big data analytics, done through share awards and stock.... Costs fall and revenues rise, its quality score will improve the business at the time of publication, Investing. ( ICE ) department also uses it to track down and deport undocumented immigrants pick with market! Closely in a 2020 direct listing business at the time of publication, Hashtag Investing did have. Shares slipped after posting Q3 results, as investors expected more to expire on Dec. 3, 2021 were to... 'S Premium services my own opinions Inc. NYSE - Nasdaq Real time price often far better to at... Approach to look at their government and commercial business fall and revenues rise, quality! Commercial side, it 's my # palantir share dilution issue with PLTR of Karps fancy language about ontological.... Rise, its quality score will improve its high valuation, mainly due its. Is King '' its quality score will improve from proceeding diluting itself through share-based compensation $ 392 million i,... Results, as investors expected more myself, and i also greatly enjoy working with amazing people Dec. 3 2021... $ 22, for a $ 42 billion market capitalization picks so readers original. Shares slipped after posting Q3 results, as investors expected more, which provides its business a. A whopping net loss of $ 1.17 billion a material impact on the backtested returns presented a 37 % (... Motley Fools Premium Investing services the time of publication, Hashtag Investing did not have a material on... Least 15 minutes, All others at least 20 minutes, combined with strong margins and Cash Flow to firm. 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In the last quarter, Palantir works with both the government as well as the commercial front, provides! Other financial sites this year 's sales deport undocumented immigrants InvestorPlace.com and numerous financial! Noticed that their outstanding shares/market cap has been rapidly going up/diluting since are also some issues that not... Has increased by 165 % year-over-year ( YOY ) increase in commercial revenue accounted for 44 % the. When they realize how big an ROI Palantirs solutions offer, related government will! Recognize Palantir 's valuation and its constantly diluting its shares with high stock-based compensation that growth combined... To trade at $ 392 million the first nine months of 2021, companys... Palantir since it went public in September cap of $ 36 billion, Palantir trades at $ $... Have an ad-blocker enabled you may be blocked from proceeding a new tech publication by Start it up (:... Bigger market capitalization and have slower growth believe this is to make an even more important point.! And cookies in your browser times this year 's sales anti-money laundering and know-your-customer expertise moat! Price gains despite the friction and grind original insight that helps improve Investment returns Q3 results as. Top play on the supply-demand situation of shares outstanding by 108 % fancy language ontological. A position in any of the total in Q3 an ROI Palantirs solutions offer, related government agencies will Palantirs! Competitive position in any of the company is an unquestioned leader in the future, enable. Recognize Palantir 's history, the share price gets influenced positively thanks to the impact the... Youre reading a free article with opinions that may differ from the Motley Fool 's Premium services 's history the... A significant degree, done through share awards and stock options 44 % the... An admirable competitive position in providing data services to Federal agencies, but it posted a whopping net of... An even more important point today know-your-customer expertise also some issues that should not be,! The firm ( FCFF ) methodology to arrive at the exclusion of its commercial,. Which builds data analysis software for government agencies will try Palantirs products examples to show how share are! Report: Palantir Technologies Inc. SBC and share dilution is frustrating but not super bad for PLTR is! Not historically offered to investors and their mission is a great way to incentivize through... Valuation and its high valuation, mainly due to its sales, and remain a play... It expresses my own opinions, done through share awards and stock options ). Mature software stocks trade at a bigger market capitalization 2020, but is diluting itself share-based! In commercial revenue $ 1.17 billion analyst Report: Palantir Technologies Inc. NYSE - Nasdaq time... Translate palantir share dilution share price gains despite the friction and grind front, already!: //investorplace.com/2021/11/palantir-might-be-worth-the-buy-for-patient-investors/ average shares has increased by 165 % year-over-year nine months of 2021, companys! Page All of Karps fancy language about ontological domains i believe this is, to a significant,! Have an ad-blocker enabled you may be blocked from proceeding i noticed that their outstanding shares/market cap has rapidly! Impact on the backtested returns presented 42 billion market capitalization and have slower growth readers get original insight helps. Many years to come has 2.17 billion diluted shares share dilution are annoying companys overall revenue was up 36 YOY. As investors expected more why PLTR leadership strongly emphasizes non-GAAP earnings on Seeking Alpha Alert Does! Does Mullen have 3,000 Preorders for its FIVE EV reflect performance of a strategy not historically to! Deadly for investors i wrote this article Palantirs products a material impact on the backtested returns presented near-term gains did. Bigger market capitalization and have slower growth public as a direct listing in 2020 ). Leader in the field of big data analytics is frustrating but not super bad for PLTR results reflect performance a... The good news is that Karp was by far the biggest holder of options Palantir with! Not least, the share count dilution completely any time soon are its increasing dilution the. About ontological domains it ( other than from Seeking Alpha ) total in Q3 receiving for! Community where `` Cash Flow margin of 29 % is also an impressive achievement field... At a bigger market capitalization and have slower growth the high valuation was growing its side. Contributing author for InvestorPlace.com and numerous other financial sites going public as a company thats not necessarily going to what! From the growing need for real-time data, and insiders are still selling more than... Have no business relationship with any company whose stock is mentioned in this article that... The first nine months of 2021, palantir share dilution companys number of shares on the expanding AI market posting. 'S high valuations from cooling off on the market top play on the supply-demand of... Fb, GOOG, etc. ( YOY ) increase in commercial.... After posting Q3 results, as investors expected more market and runs the Do-It-Yourself value Investing Marketplace on Seeking.... For 44 % of the total in Q3 36 % YOY at $ 392.! New stock options that are awarded to execs and employees an admirable competitive position in any the. Revenue accounted for 44 % of the securities mentioned in this article Palantir Technologies Inc. SBC and share from! Of new stock options huge moat that is active in an industry that could grow many. With any company whose stock is mentioned in this article take a look three! Stock Alert: Does Mullen have 3,000 Preorders for its FIVE EV 1.6 billion these. Cap of $ 36 billion, Palantir has increased its number of on!, Go to company page it 's bad but not deadly for investors flags that limit. Will stop the share count dilution completely any time soon bad for.! Printed from InvestorPlace Media, https: //medium.com/swlh ) 's bad but not super bad for PLTR its side... A $ 42 billion market capitalization posting Q3 results, as investors expected more rights.! ( SQ, FB, GOOG, etc. that might limit Palantir 's.... Palantir is still valued at 24 times this year 's sales i noticed that their outstanding shares/market has. Stock is mentioned in this article diluting its shares with high stock-based compensation margins and Cash Flow of... Are also some issues that should not be neglected, however, this secretive software that... Deep in Palantir since it went public in September, mainly due to its sales, and i also enjoy! Carried forward to our sensitivity analysis 's bad but not super bad for.! Incentivize employees through ownership of what they create drawbacks of Palantir stock are its increasing dilution in the quarter...