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Palantir Stock In-Depth

It is time to breakdown the Palantir stock.

What is going right?

What is going wrong?

Is the business sector growing?

Understanding the stock is a good way to decide if you want to be a stock owner. If a stock is too difficult to understand you may want to avoid it.

Important note: Don't let you knowledge bias cloud your investment judgement. Just because you have done a lot of research on one stock does not mean a stock will perform better. Try to be as impartial as possible when making investment decisions.

    1. Overview

    https://www.palantir.com/

    Palantir is a software business that is focused on data analytics. It is a business to business or government solution provider. They provide products and services to clients both public and private that analyze data and create reports as well as suggesting potential solutions for leaders to make better decisions.

    They also offer AI software that uses input data to help build new or better business software faster and better.

    Their three products are:

    Foundry, Gotham, Apollo

    Palantir is primarily a cloud 'operating system' that is customizable for many different industries. They began primarily in the public sector, but today have clients in a many different economic sectors.

    How much does Palantir cost?

    It is hard to pin down exact figures for their software, but in my opinion this is a premium software product. There is a standard 'core' installation cost that can run upward of $100,000. There is a monthly cloud license fee. Then there is license fee for each user. It can really start to add up.

    Do not trust my cost numbers, for exact numbers reach out to Palantir. Many of their contracts, particularly with the government are confidential so there is no data around total costs. But based on antidotal evidence suggests that their services come at a high cost to their clients. But maybe the cost is worth it for the benefits their clients receive, again since they provide services to governments and large businesses the vast majority of results are confidential.

    2. History

    Palantir was founded in 2003 by Peter Theil. He was coming off the success of PayPal and saw a use case for a standalone software company that could analyze data and detect monetary transactions that could be considered fraud. PayPal was using its own software for this purpose.

    Peter Thiel provided the initial investment money along with three other founders Joe Lonsdale, Nathan Gettings and Stephen Cohen. Thiel hired Alex Karp as the CEO of the business.

    Alex Karp is the current CEO of Palantir.

    Thiel initially invested $30 Million into the company along with $2 Million from the CIA investment group In-Q-Tel.

    The initial clients of Palantir were various U.S. government agencies which are still using the software today. Over time more and more public entities have adopted the services while Palantir has worked to expand its corporate client base.

    In 2020, the NHS used Palantir software to fight the Covid-19 virus along with winning an FDA contract.

    The same year Palantir went through a direct listing at a $15 Billion value.

    3. Industry

    Palantir is in the SaaS industry. It provides its software on a monthly basis and user basis.

    The SaaS industry is competitive with many different software providers available, but Palantir does have some competitive advantages. They began their business servicing the intelligence community which gives the business immediate security credibility. Since they began providing government software they have expanded to many different US agencies and other global governments.

    But government business is not enough reach their business goals. They need to continue their expansion into the B2B software market.

    Palantir is a data analytics provider. There are many well-funded technology providers operating in this space.

    Competitors

    - Microsoft

    - Salesforce - Tableu

    - Oracle

    - Alteryx

    - Cognizant

    - Splunk

    - Trifacta

    - IBM

    - Tyler Technologies

    - Verint

    - Toad Data Point

    There is definitely competition, but Palantir also provides more powerful tools than some of its competition.

    4. Ownership

    Total Shares Outstanding

    2021 - 2.291 Billion shares outstanding

    2020 - 1.522 Billion shares outstanding

    Share Ownership

    The Vanguard Group - 155,727,679

    BlackRock Fund Advisors - 68,341,040

    SSgA Fund Management - 34,217,499

    Renaissance Technologies - 28,204,147

    Geode Capital Management - 20,751,665

    Norges Bank Investment Management - 14,780,767

    Northern Trust Investments - 10,555,962

    Goldman Sachs - 9,305,681

    Institutional ownership =

    Individual ownership =

    5. Valuation

    Market Cap = $16.524 Billion

    $7.99 per share

    EPS -.025

    6. Earnings and Net income

    Revenue

    2021 = $1,541,889,000

    2020 = $1,092,673,000

    2019 = $742,555,000

    Net Income

    2021 = -$520,379

    2020 = -$1,166,391

    2019 = -$579,643

    7. Balance Sheet

    2021

    Total Cash = $2,524,827,000

    Total Assets = $3,247,450,000

    Total Liabilities = $956,420,000

    8. Potential Success

    Palantir has a lot going for it. They are heavily embedded in the U.S. government which runs on yearly and long-term contracts. If the work is good there is room for the government to expand its contracts into different agencies throughout the government and the US gov has deep pockets. The validation of working with the US government could also lead to other country partnerships that could be lucrative. This would lead to long term contracts for Palantir that would sustain their other efforts.

    Palantir is all about big data. The more data that is fed into the software the more valuable to software becomes. As they receive more data they should be able to improve the software capabilities and develop new software to serve the data that is being fed into the products.

    The long term business trends look to be in favor of Palantir. More and more businesses are going online to the cloud and they are producing more data that needs to be mined and understood to make better business decisions. If the industry grows as a whole this should benefit Palantir directly.

    They can serve lots of different industries. The long term profitability of Palantir will come from large public companies. They are B2B software. They need the largest businesses in the world to adopt their software. They already have some large businesses using the software, but the more sectors of the economy they can tailor their products for the higher adoption they will get.

    Palantir can deal with complex problems. Like terrorism. There are only a few companies that have proven that they can work in complex data spaces.

    If Palantir laser focuses on scaling their current products they should be in a good position to take advantage of the future.

    9. Potential Failure

    Palantir has dealt with a lot of headwinds during its time as a business.

    At this moment the stock is lower in value than when it IPO'd.

    There is a looming global economic recession on the horizon, that if it happens, will have an impact on Palantir. Large businesses will cut their budgets and Palantir will be cut in the process.

    Palantir has been involved in controversy in the past for a few different reasons. They work with the CIA. The CIA uses Palantir software to analyze data on humans, specifically focusing on people that might want to do harm to the US or its allies. Some people see this as an invasion of their privacy and civil rights. Palantir is also fairly secretive. The majority of the public does not know what the Palantir software does or how it is being used. This presents 2 problems, people do not like the unknown and do not want big brother watching over them. Also, brand. Large businesses may not know that they need Palantir or may not adopt this software because it is too secretive or complex for them to understand.

    Competition

    Palantir has some well funded competition

    Microsoft, Oracle, Salesforce etc. The list goes on and on. Now Palantir may be able to handle more than these other competitors, but they have to win large contracts from these organizations. If these orgs already have a relationship with Microsoft they may want to just keep in that family of software products.

    Price.

    Palantir services are expensive.

    There are only so many large organizations that can afford to adopt this software. At some point Palantir may need to provide a lower cost product to reach more new businesses or individual consumers.

    10. Verdict

    Palantir is definitely still in growth mode. They are losing money year over year. The revenue is growing and the more clients and data that they can process will lead to more revenue in the future, but that seems like it will be years in the future.

    I like that they are trusted by the US government. It takes a lot of work for the US government to accept certain companies as vendors and then to maintain that relationship. The fact that Palantir already has that relationship should open doors for other companies to trust the security and proof of concert of their services.

    They seem to have strong products that can produce real world results.

    The people that started the business are still involved in the operation of this business.

    They have a lot of competition.

    I think a lot of people are scared away from investing into Palantir, because they do not understand exactly how the Palantir software operates, but that has never scared me away from investing in something. I have been an investor into Lockheed Martin for years. I will probably never be able to use any of products like fighter jets, but I still trust that they have a solid business and creating valuable products.

    Big data is a stick business.

    The entire industry is growing.

    I like the software pricing model.

    I think Palantir will be able to create more products/services in the future that could expand revenue.

    It will be a rough ride for Palantir in the short term. Currently, their stock is less than $10/share and will likely stay that low as long as interest rates are increasing. The cost of Palantir's debt will increase. If a global slowdown happens it will hurt this business.

    If you are a long term investor, I think this business is worth a look. Over the next decade or 2 I think the business will be able to dramatically increase revenue, but it may take 10 years or more for that to materialize. In the short term I do not think the business value will change much.

    This also may be a good time to invest. The business is lower in value than went it went public. As tech stocks have been hit hard this may be a good time to buy into this stock at a lower price and wait till increases in value.

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