Palantir, A Deep Analysis
Do we like the stock?
Since Palantir (Ticker: $PLTR) IPO’d on September 30th 2020 at roughly $10 a share, the stock has risen to highs of $44.
Shrouded in mystery little is known about the inner workings of the business as well as what services they provide to customers.
In this article I will attempt to pull back the veil somewhat and discuss the business itself, its products and future prospects to ascertain if the stock currently trading at $23.90 (at the time of writing) is a fair price and not just a glorified pump.
What Exactly is Palantir?
At its heart Palantir is a software company that specializes in the area of big data analytics.
Big Data?
Dont be scared by the buzzword, big data just describes the practice of dealing with large datasets for example historical stock prices, or customer data and attempting to ascertain meaningful and actionable information from these datasets.
Relationships such as consumer spending habits, or trying to find relationships or trends in a stock price would be a couple of samples of the goals of analysis on these datasets.
Thats where Palantir comes in. Palantir essentially creates full stack platforms that can store this data and process it according to their customers wishes and needs.
Palantir explicitly states that they dislike automated approaches to data analysis and “believes in augmenting human intelligence, not replacing it”.
In simple terms, Palantir is not an exclusive AI/ML enterprise or they are not going Huawei on their customers by selling data.
A Brief History
Now that we have at least some idea of what Palantir does lets look back at the companies history.
Founded in 2003 by Peter Thiel a member of the notorious Paypal Mafia. Thiels motivation for Palantir was to develop software that could create software like fraud detection systems present at Paypal to “reduce terrorism while preserving civil liberties”
2004 was the year that Thiel hired Alex Karp to the position as CEO, a role he has remained in since then.
Palantir struggled initially to source investment but continued to innovate adopting an approach that used AI to sort data and a human led analysis of said data.
Starting from about 2009 Palantirs fortunes began to turn. Palantir software was used to uncover Chinese intelligence operations that infiltrated Indian security and defence systems.
By 2013 Palantirs clients included many branches of the US Government, The CIA,NSA and CDC to name but a few.
Over the following two years Palantir raised over 1 billion from private investors with the company being values at roughly 20 billion by 2015.
Fast forward 5 years and Palantir IPO’s on September 30th 2020 closing at $9.20.
Products
Many of the products capabilities and functions are still quite benign so I will provide all the basic info available.
Gotham
Focuses on using data to undertake “missions” and running investigations using data that would normally not be compatible.
Foundry
Allows users who are not data scientists to work with data and gather meaningful insights from it.
Metropolis
Fintech service provider used in quantitative analysis
Apollo
Benign product from their website it is described as “Palantir Apollo is the continuous delivery software that powers our SaaS platforms, Foundry and Gotham, in the public cloud and beyond. Apollo works around the clock to put our latest features in the hands of customers.”
Whatever that means.
Customers
As mentioned before Government agencies have been and still remain the largest proponent of Palantirs customer base at roughly 56% of the spread of customers which include the NSA, FBI, CIA etc and recently signed a new $111 million deal with the Pentagon
Other notable clients include the National Heath Service in England and Airbus and Ferrari.
Palantirs Metropolis also services a multitude of Hedge Funds and Banks most of which are unknown due to the secretive nature of these contracts.
Clearly over leveraged in the defense sector, Palantir has been focused on increasing their Business to Business contracts which would prove to be more profitable in the long term.
Earnings
Here comes the juicy information.
Palantir is still not a profitable enterprise.
The most recent earnings report delivered on the 16th February included:
· $1.1 billion in revenue for full year 2020, up 47% year-over-year
· $322 million in revenue for Q4 2020, up 40% year-over-year
· New contracts in Q4 2020 include Rio Tinto, PG&E, bp, U.S. Army, U.S. Air Force, FDA, and NHS
· Expects Q1 2021 revenue growth of 45% year-over-year
This all sounds great but EPS missed heavily at -0.02 while 0.08 expected.
Make of this what you will but a stock price of $44 at a marketcap of $44 billion with these earnings is worrying but not indicative of future prospects as we will discuss in the next section.
Future Prospects by Sector
As someone who has a basic understanding of data analytics and ML fields forward prospects are obviously quite good for Palantir.
Big Data is categorically an incredibly trendy field that presents its own advantages and problems.
Being trendy can both increase interest for Palantirs products but can also in the medium term disrupt the business as enthusiasm fades and is replaced by new fads in business.
Quite a considerable if and its something to bear in mind but not necessarily a massive issue.
The nature of palantirs products are slightly different than the competitors so naturally comparing them to any other outfit is troublesome and is in some respects trivial.
Palantir themselves through a clever piece of marketing establishes their main competition as the customers themselves.
Teething problems you would consider after 16–17 years then have been resolved and Palantir can wholly focus on refining products, increasing consumer base and eventually turning into a profitable Enterprise.
Future prospects look promising with this industry and demand increasing as long as these current trends continue Palantir is well positioned to fully profit from this.
Conclusion
At the time of recording Palantir sits at 23.90 after losing approx. 50% of its value from the highs of 44 ish dollars.
A wallstreetbets backed stock, Palantir saw incredible growth on the back of retail enthusiasm.
In general, my rule is to not play these types of stocks and as such I myself will remain on the sidelines until Palantir can find some consistent levels and break away from mainstream attention.
I like the stock around $15 for a medium to long term investment.
As ever in a dynamic industry, one contract or one positive earnings report could invariably send this company “to the moon”.
It’s naturally a risky investment as the stocks volatility is incredibly high, as such a small position is what I would recommend for anyone thinking about taking a stake in this business.
