Palantir, however, is still relatively small compared to these giants, and the company is way less profitable. I am not receiving compensation for it (other than from Seeking Alpha). for Palantir. Web2,173,481,929 shares was the fully diluted share count as of DPO and this included outstanding options and RSUs that have not yet vested. Another argument made against Palantir is that its share-based compensation hurts investors a lot. government.". Palantirs historical numbers are consolidated from FY18 to FY20 and projections are conducted from FY21 to FY27. 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). I am not receiving compensation for it (other than from Seeking Alpha). A subsequent revised version will include a business and industry overview, Palantirs competitive positioning, and potential investment risks. Its opportunities include leveraging its anti-money laundering and know-your-customer expertise. Not surprisingly, Karp has sold a lot of these options recently. Attached in this story is an initiated primer report on Palantir (NYSE:PLTR) The report seeks to incorporate stock-based compensations to determine the true fair value of the company, as technology stocks/high-growth companies often inflate their cash position via issuance of Restrictive Stock Units (RSUs) and stock options. Nevertheless, PLTR is forecasted to grow like crazy as I've already demonstrated above. Copyright 2023 InvestorPlace Media, LLC. Analyst Report: Palantir Technologies Inc. NYSE - Nasdaq Real Time Price. Social Security: 4 Big Changes Washington Wants to Make, Warren Buffett Is Raking in $4.84 Billion in Annual Dividend Income From These 6 Stocks, 3 Reasons Tesla Stock Is a No-Brainer Buy in 2023, 3 High-Growth Stocks That Could Be Worth $1 Trillion in 10 Years -- or Sooner, Join Nearly 1 Million Premium Members And Get More In-Depth Stock Guidance and Research, Motley Fool Issues Rare All In Buy Alert, Copyright, Trademark and Patent Information. Among them is Palantir's pretty high valuation, at around 150x 2021's expected net profits. 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%. But over the long term, I still expect Palantir to leverage its battle-hardened reputation to secure more government clients and expand its enterprise business. Here's some color: The company appears to favour SBC over salary for all its employees, and thanks to the direct listing in 2020, the stock-based compensation expense increased five-fold from $241m in 2019 to $1.2bn in 2020. 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. That's the point. Palantir announced its financial results for FY21 Q3 including the following: (1) 34 net new customers in Q3, closing 54 deals of >US$1M, 33 deals of >US$5M, and 18 deals of >US$10M, (2) Total revenue growth of 36% y-o-y to US$392M for FY21 Q3, (3) Positive free cash flow of US$119M, representing a 30% margin. These multiples will be carried forward to our sensitivity analysis. This attractive combination of both fronts also has the possibility to turn Palantir into one of the largest and most important companies in the future to come, thereby enabling the investors to earn multi-bagger gains. First, as I've roughly demonstrated above, share count can go up or down, yet investors can still do quite well. Here's what PLTR is saying about their growth over the next several years. The real question isn't compensation but dilution and share count. 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. Palantir has never been a profitable companysince its inception. As noted earlier, Palantir trades at unfavorable valuations including a high price/sales. First, the company is growing its commercial revenue. 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. from when they initially went public and their dilution ranged from 10-20% (most in the low 10s).What does this mean? Today, data is the Holy Grail around the globe, and this demand has turned the data analytics business into one of the most demanding ones in todays time. At that point, PLTR would, I believe, have ample financial firepower relative to the company's size, which could allow management to pursue buybacks at a meaningful pace -- $5 billion would be north of 10% of the current market capitalization. At an annualized rate of close to $500 million, PLTR trades at an operating cash flow multiple in the 80s, however, which is far from inexpensive. Theres likely a few reasons for Palantir to favour SBC over salary. It also announced it would accept payment in Bitcoin (CCC:BTC-USD), although according to a company spokeswoman, Palantir has not received any payments in the cryptocurrency. Moreover, the high dilution has also been preventing Palantirs high valuations from cooling off. A football field visualisation shows us that Palantir is actually fairly priced at its current valuation and growth story potential, and investors should look beyond Palantirs growth story (high growth, decreasing stock-based compensation) as there is more than what meets the eyes of our subjective bias (Fig 7). In the Q3 2021 earnings conference call on Nov.9, he said, legacy compliance solutions are often 2 or more decades behind. Last September, I bought a large position in Palantir Technologies (PLTR -1.84%)at just under $10 per share after it went public through a direct listing. 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. EV/EBITDA multiple method is derived by taking public comparables across (1) systems integrators, (2) high growth Software as a Service (SaaS) companies, and (3) data mining and visualization companies across different industry verticals (Fig 5). These options were set to expire on Dec. 3, 2021. However, these options will eventually be exercised, diluting the existing shareholder structure and lowering the share price in the future. The same was true for many other companies in a similar position, e.g. they should be getting. Palantir's share count continues to rise because it relies heavily on its stock-based compensation (which consumed 55% of its revenue in the first nine months of 2021) to fund its operations in lieu of cash. The company knows that its hold in themission-critical technological area(military AI) is pretty good. I am an investor, entrepreneur, father, husband, coach and teacher. It is common trend with all companies with negative EPS as they can not issue bonds which need to be repaid. The portfolio's price can fluctuate, but the income stream remains consistent. I'll Avoid These Sectors In 2023 3:39AM ET 1/15/2023 Seeking Alpha. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. Its stock remains expensive relative to its sales, and insiders are still selling more shares than theyre buying. And, if you've been following me for any time, you know that one of biggest concerns is PLTR's stock-based compensation, also known as SBC. I have no business relationship with any company whose stock is mentioned in this article. Growth will smooth over the share dilution, and the stock price is likely to rise as a result. Palantir has massively diluted its shareholders whereas Datawalk has just gradually issued shares over time. I'll have to review this more closely in a future article. As such, an entry into Palantir could be wise in the US$1921 region and initiating covered call positions (up to 90 days out) since movement of the share price will likely be very muted till the release of every quarterly financial results to review the companys growth potential and cost structure. I think it is an attractive long-term buy because its innovative technology has immense growth potential in the years to come. Invest better with The Motley Fool. However, instead of being frustrated, it's instructive to consider the big picture, over a reasonable amount of time. 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. 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%. Palantir Technologies is not yet profitable, but its continued success in both the public and private sectors will give the companys operations the necessary boost and drive it towards profitability along with bestowing the investors with market-beating returns. Despite the long reduce the number of new stock options that are awarded to execs and employees. Moreover, the company still has huge room for growth as its AI-powered data mining tools are not going to lose importance anytime soon. WebTo give you an idea of how many shares were covered under the 2010 Plan, this is from the S-1 (emphasis mine): As of June 30, 2020, options to purchase 308,905,744 shares of There is, however, also another possibility. If you have an ad-blocker enabled you may be blocked from proceeding. Backtested results are calculated by the retroactive application of a model constructed on the basis of historical data and based on assumptions integral to the model which may or may not be testable and are subject to losses. I wrote this article myself, and it expresses my own opinions. Therefore, long-term investors who have a lot of patience might want to consider this stock for their portfolios. Palantir, as a high-growth tech company, has to compete for talent and wants to reward its employees and managers when they do generate strong results. Palantirs adjusted free cash flow margin of 29% is also an impressive achievement. The current growth story looks to be well priced in, with a small upside at a purchase price of US$22.83 as of 15th Nov 21. Firstly, compensation via stock is a great way to incentivize employees through ownership of what they create. It's fair to say that I am one of the biggest Palantir (NYSE:PLTR) bulls on Seeking Alpha. Chris Lauis acontributing author for InvestorPlace.com and numerous other financial sites. Second, mobility is growing in the automotive sector. A new tech publication by Start it up (https://medium.com/swlh). For example, it set up an anti-money-laundering system for one of Europes largest retail banks in just two days last quarter. What did investors not like about Palantirs third-quarter results? Therefore, it is aggressively investing in sustaining its position and presenting itself as the only viable military AI option for the democracies intending to withstand the technological advances and espionage threats on them. The company is an unquestioned leader in the field of big data analytics. For example, after the Q2 2021 Earnings Call, I wrote: Stock based compensation increased. The stock has a 52-week high of $45 and a 52-week low of $14.40. Commercial revenue accounted for 44% of the total in Q3. However, the stock market did not seem to reciprocate such good news and instead, Palantir has dropped ~15% from US$ 26.75 to US$22.83 as of 15th Nov 2021. eBay, Go to company page This is all very rough, of course. On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. Furthermore, PLTR has a narrative to maintain. Without incorporating the effects of dilution, any fair value automatically becomes inaccurate aka useless- and we risk thinking that a $81 fair value per share for Palantir would be reasonable. So been balls deep in Palantir since it went public in September. Someone else is enjoying the rewards. We believe there are no alternatives that can compete on cost, speed, and performance.. The company gathers and organizes data from disparate sources to help its clients make data-driven decisions. Since one of 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. MULN Stock Alert: Why Are Investors Suing Mullen Automotive? Louis Navellier and the InvestorPlace Research Staff. When paying a very high multiple for a company that has to grow for a very long time to justify its current price, many things could eventually go wrong. This is somewhat difficult for some investors to remember. Third, its growth in healthcare is rising. Moreover, the company is also focusing on accelerating its business, especially across the commercial front, with its second software solution,Foundry. As the company relies heavily on stock-based compensation, its number of weighted average shares has been rapidly increasing over the period. Forget Tesla! Certain assumptions have been made for modeling purposes and are unlikely to be realized. Share-based compensation expenses have declined in recent quarters, which is in line with what one would expect from the above chart. In a recent article I wrote on the stock, I estimated PLTR's 10-year return potential at 10%+ a year. WebIn addition, there are up to 0.5B additional shares that will vest via options in 2021+ at a very low strike price that will increase the total share count to up to 2.2B and cause a Here's how their share counts look over the last five years or so: Obviously CRM is diluting; up 51%. Copyright SHARE THIS POST Stock Based Compensation: The Dilution Potential Of The Worst Offenders 7:01PM ET 1/15/2023 Seeking Alpha. Motley Fool Palantir Is Starting 2023 With A Bang Price as of January 18, 2023, 1:25 p.m. If history repeats itself, then PLTR stock could set up as a profitable trade. It soared from $9-$10 levels in September 2020 (when it debuted on the exchanges) to $45 by January 2021. At an annualized $1.57 billion and a $45.4 billion market capitalization, PLTR shares trade at 29 times price-to-sales. Due to the fact that there is no need to pay down debt, and since capital expenditures are pretty low, while the company also does not need to add growth through M&A (as its organic growth is strong already), it would not seem like a huge surprise if PLTR eventually starts buying back its own shares. I have no business relationship with any company whose stock is mentioned in this article. One bearish argument against Palantir continues to be the companys reliance on government contracts. 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. Moreover, Palantir works with both the government as well as the commercial front, which provides its business with a wider moat. PLTR is sitting around P/S of 30 which seems somewhat reasonable, at least in relation to other hot, high growth stocks. 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%) After the company powered the Gotham and Foundry operating systems on Edge computing, the speed of the products analytics are sure to satisfy the most demanding customers. Thecompanys targetof generating more than 30% sales growth annually gives ammo to its high price-to-sales ratio. Palantir has been operating for the past two decades and has been helping organizations undertake accurate data-driven decisions. The future looks bright. We must continue to watch SBC and dilution like hawks. In this report, we look to uncover Palantirs financial growth story and assume a 30% y-o-y growth to determine if the projections stay feasible, then Palantir has indeed been mispriced and is currently undervalued. When employees start to exercise these rights, (1) future dilution and (2) decreased free cash flow will occur, slashing the fair value per share to a lower price. To determine Palantirs fair value in its share price, we will use the Discounted Cash Flow (DCF) method, discounting Palantirs future cash flows of up to FY27. In order to pay for share repurchases one has to pay cash, of course, which is why we should take a look into PLTR's balance sheet and cash flow statement: We see that Palantir has a net cash position of $2.1 billion, not accounting for restricted cash. First, I explain how stock-based compensation or "SBC" is my #1 complaint about Palantir. Palantirs share price has undergone loads of controversy in terms of the forecasted direction and the possibility of a huge potential upside. Down 65% in This Bear Market, Can Palantir Recover in 2023? values the company at around $40 billion. 7 Top-Rated Energy Stocks to Fill Up Your Portfolio. That is to say, "anger" is felt because investors aren't getting as much value as they think they should be getting. 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. The company will look to turn profitable come FY26 and will start to experience improving margins (both EBITDA and net margins) in FY26 and FY27 (Fig 3). As costs fall and revenues rise, its quality score will improve. Today, Palantir trades at $22, for a $42 billion market capitalization. Due to the fact that a high-growth company also has many In total, Palantir grew revenue by 36% year-over-year to $392 million. Uber, Lucky you got in in September. 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. 29 % is also an impressive achievement clients make data-driven decisions whose stock a... Rapidly increasing over the next several years $ 45.4 billion market capitalization, the... 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Myself, and insiders are still selling more shares than theyre buying relative. % in this Bear market, can Palantir Recover in 2023 3:39AM ET 1/15/2023 Seeking Alpha their.... $ 14.40 the government as well as the commercial front, which is in line with one... Next several years stock remains expensive relative to its sales, and..! Inc. NYSE - Nasdaq Real time price banks in just two days quarter. Going to lose importance anytime soon sources to help its clients make data-driven decisions of 29 % is also impressive... January 18, 2023, 1:25 p.m is way less profitable of these options were set to on... What one would expect from the Motley Fool 's premium services big picture, over a reasonable of... Gathers and organizes data from disparate sources to help its clients make data-driven decisions reasonable amount of...What does this mean the company is way less profitable guidance, it... Shares was the fully diluted share count with any company whose stock mentioned... 'Ve already demonstrated above, share count as of DPO and this outstanding. Issue bonds which need to be realized potential upside likely a few reasons for Palantir favour!, coach and teacher declined in recent quarters, which is in line with what one would expect the! 2023, 1:25 p.m trade at 29 times price-to-sales at $ 22, for a 42. Of the Worst Offenders 7:01PM ET 1/15/2023 Seeking Alpha instead of being frustrated, set! Bonds which need to be realized the high dilution has also been preventing palantirs high from... Business relationship with any company whose stock is mentioned in this Bear market, can Palantir in. Does this mean at an annualized $ 1.57 billion and a $ 45.4 billion market capitalization to... Therefore, long-term investors who have a lot of patience might want to consider this stock their... Amount of time government contracts count can go up or down, yet can. `` SBC '' is my # 1 complaint about Palantir continues to be companys.

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