Palantir Stock Gains 10% On U.S. Army Contract, But There’s Still More Upside

Things have been looking up for big data and analytics player Palantir (NYSE:PLTR) in recent months, with the company posting robust Q2 earnings and improving the growth rates for its closely tracked commercial operations as business picks up with the Covid-19 reopening. Things are looking still better for the company’s bread-and-butter government business, as well. On Tuesday, Palantir said that it won the bulk of an $823 million indefinite-delivery, indefinite-quantity contract to provide data and analytics software to the U.S. Army, using its Gotham platform. This is a reasonably large win, considering that Palantir revenues are projected to stand at just about $1.5 billion in FY’21, per our estimates. Palantir stock rallied by about 10% in after-hours trading following the announcement, trading at $25.60 per share.

So is there more room for growth in Palantir’s stock? We think Palantir stock has a little more upside. We value the stock at about $29 per share, or about 35x projected 2021 revenue, a premium of about 13% versus the after-hours stock price as of Tuesday. We think the premium is justified, given Palantir’s solid growth outlook and its improving margins. Palantir sees itself growing revenues at 30%-plus levels from 2021 through 2025, as both its commercial and government businesses continue to expand. Margins are also looking up, with adjusted operating margins standing at over 30% for the last three quarters straight, meaning that the company should be solidly profitable as revenues scale up. See our analysis Palantir Valuation: Is PLTR Stock Expensive Or Cheap? for more details.

[9/20/2021] Up 14% Last Month, What’s Next For Palantir Stock?

Big data and analytics player Palantir’s stock (NYSE: PLTR) rallied by over 9% over the last week (five trading days) compared to the S&P 500 which declined by about 1% over the same period. The stock also remains up by about 14% over the last month. There are a couple of developments driving the recent gains. Firstly, investors are likely continuing to buy into the Palantir stock following its stronger-than-expected Q2 earnings which saw the company post robust commercial growth and raise its full-year guidance. Moreover, last week Palantir said that it was working with Wejo, a specialist in connected vehicle data, to combine Wejo’s massive data sets with Palantir’s Foundry data analytics platform, to provide insights that can be leveraged by auto parts suppliers, regulators, and city planners. Although the size of the market isn’t clear, it underscores that Palantir’s big data platform has considerable opportunity beyond the core government market.

So will the rally continue or is a decline looking more likely in the near term? Per the Trefis machine learning engine, out of 74 instances in the last year that Palantir Technologies (PLTR) stock saw a 21-day rise of 14% or more, 47 of them resulted in PLTR stock declining over the subsequent one-month period (21 trading days). This historical pattern reflects 47 out of 74, or about 64% chance of a drop in Palantir Technologies stock over the next month. See our analysis Palantir Stock Chance Of Decline for more details.

That said, we think Palantir stock is actually fairly valued at current levels of $29 per share. While the stock trades at about 36x projected 2021 revenues, this is largely justified by strong growth rates (annual top-line expected to grow at 30%-plus levels through 2025), expanding margins, and new opportunities in the commercial business. See our analysis Palantir Valuation: Is PLTR Stock Expensive Or Cheap? for more details on the company’s revenues, the valuation multiple, and comparison with peers.

[9/3/2021] Is Palantir Stock A Buy At $26?

Big data and analytics player Palantir’s stock (NYSE: PLTR) rallied by over 6% over the last week (five trading days) compared to the S&P 500 which gained a little over 1% over the same period. Although there hasn’t been too much news specific to Palantir stock over the past few days, the broader software space has performed well and investors are also likely continuing to buy into the Palantir stock following its stronger-than-expected Q2 earnings report, published on August 20. So will the rally continue? We think Palantir stock has a little more upside. We value the stock at about $29 per share, or about 35x projected 2021 revenue, a premium of about 10% versus the current market price.

There are a couple of trends driving our valuation. Firstly, Palantir’s long-term outlook is strong, with the company forecasting that its annual top-line will grow at 30%-plus levels through 2025. Moreover, the company’s commercial business, which had been a mixed performer over the last year, is seeing increasing traction with revenue rising by about 28% year-over-year during Q2, and this traction could hold up, as economies begin to open up following Covid-19 lockdowns with spending by businesses poised to look up. A possibility of an increasing commercial revenue mix is positive for Palantir as the commercial business is much more transparent compared to the government vertical, with valuation multiples for commercial businesses also usually higher than for government contractors. Thirdly, margins are also picking up nicely. Adjusted operating margins rose to about 33% over the first half of 2021 versus about 3% last year, meaning that Palantir could be solidly profitable as revenues continue to scale up. See our analysis Palantir Valuation: Is PLTR Stock Expensive Or Cheap? for more details.

[7/13/2021] Palantir’s Commercial Business Is Picking Up. What Does It Mean For The Stock?Palantir (NYSE:PLTR) published a stronger than expected set of Q2 2021 results as it continued to see robust demand for its software and services. Total revenues rose by about 49% year-over-year to $376 million, while adjusted earnings stood at $0.04 per share, up from $0.01 per share last year. Palantir stock rallied by about 11% in Thursday’s trading.

Notably, the company’s commercial business, which had been a mixed performer over the last year, saw revenue grow by about 28% year-over-year, as sales to customers in the U.S. soared. This marks an increase from a year-over-year growth rate of about 19% during Q1. Although Palantir’s bread-and-butter government revenue actually grew much faster at 66% year-over-year, driven by new deals with the U.S, investors typically pay a lot more attention to the commercial side of Palantir’s business. This is because the commercial business is more transparent compared to the government vertical, and valuation multiples for commercial businesses are also usually higher than for government contractors.

Things could get better still for the commercial business going forward, as Palantir has been ramping up its direct sales force, expanding its distribution channels, and shifting from a highly customized deployment model to a slightly more standardized model. Moreover, the company’s international operations, which remained muted over Q2, could see a recovery going forward, as economies begin to open up with spending by businesses poised to look up.

We value Palantir stock at about $27 per share, slightly ahead of the current market price. See our analysis Palantir Valuation: Is PLTR Stock Expensive Or Cheap? for more details on the company’s valuation and comparison with peers.

[6/30/2021] What Are The Catalysts For Palantir’s Stock’s Next Big Breakout?

Government-focused big data and analytics player Palantir (NYSE:PLTR) saw its stock rally following its September 2020 IPO, rising from levels of under $10 per share to over $38 by mid-February 2021. However, the stock has declined since then and has largely been trading sideways at levels of between $20 and $30 per share over the last few months. The correction was driven by a slightly weaker than expected growth outlook for 2021 and also due to the broader sector rotation happening in the markets, with investors moving funds away from high-growth stocks into value and cyclical stocks, to play the re-opening following Covid-19, and also due to an increasingly hawkish stance by the U.S. Federal Reserve. However, we see a couple of catalysts over the near-to-medium term that could drive Palantir stock higher in the coming months.

Palantir has posted net losses every year since it was founded back in 2003. Reported net losses stood at about $1.17 billion in 2020, although this was largely due to high stock-based compensation expenses. It’s likely that the tag of being a relatively mature, yet unprofitable company isn’t helping the narrative around Palantir stock. However, the economics of Palantir’s underlying business is clearly getting better. Adjusted operating margins rose to about 17% in 2020, up from negative levels in 2019 and the company also recently raised adjusted free cash flow guidance for the full year 2021, from breakeven to in excess of $150 million. As revenues continue to scale up it’s likely that profits will also follow suit in the coming quarters, potentially proving a catalyst for the stock.

Another big catalyst is likely to be a stronger performance of Palantir’s commercial operations. The commercial business, which was Palantir’s biggest segment over 2018 and 2019, has fallen behind the government vertical, which has now emerged as the company’s largest, and fastest-growing business. Over Q1 2021, commercial revenues stood at $133 million, up just about 19% year over year, well below the government business, which grew by 76% to $208 million. This is problematic for Palantir, as the government business has lower levels of transparency, with investors also valuing government contractors at lower multiples. Now Palantir is taking multiple steps to drive commercial growth, by ramping up its direct sales force, expanding its distribution channels, and shifting from a highly customized deployment model to a slightly more standardized model. If these efforts pay off, it could help Palantir’s stock, as well.

Looking for reasonably valued software stocks with big room to grow? Check out our theme on Mid-Cap SaaS Stocks[5/30/2021] What Ails Palantir’s Government Business?

A big part of the investment thesis for government-focused big data and analytics player Palantir (NYSE:PLTR) hinges on the expansion of its commercial operations. However, recent progress has been somewhat mixed. The commercial business, which was Palantir’s largest segment over 2018 and 2019, has fallen behind the government vertical, which has now emerged as the company’s largest, and fastest-growing business. Over Q1 2021, commercial revenues stood at $133 million, up just about 19% year over year, well below the government business, which grew by 76% to $208 million. This is problematic for Palantir, as the government business has lower levels of transparency and comes with perception issues. Investors also tend to value government contractors with lower multiples. For example, the stock declined by almost 10% in the days following Palantir’s Q1 results, as investors brushed off the company’s earnings beat and strong guidance and focused on slower than expected commercial growth.

That said, we think things could look up from here. Palantir’s commercial business is primarily comprised of its Foundry software product – which it markets as a central operating system for an organizations’ data, that enables users to integrate and analyze the data they need in one place. The software finds applications in industries ranging from health care to manufacturing. Although companies have scaled back on IT spending over 2020, as they focused budgets on remote working and collaboration tools, they could renew their focus on other areas such as big data and analytics from this year onward.

Palantir is also taking multiple steps to drive commercial segment growth. The company has been increasing its direct sales force, while also expanding its distribution channels with new partnerships with complementary software companies, system integrators, and cloud providers in a move that could increase its reach considerably. The company announced a distribution deal with IBM over the last quarter. Palantir has also taken steps to shift from a highly customized, time-consuming deployment model that relies on engineers to configure, maintain, and upgrade its tools, to a slightly more standardized model. There’s plenty of room to scale up the commercial business as Palantir estimates the total addressable market for its commercial operations at about $56 billion, just slightly below the $63 billion addressable market for the government vertical.

See our interactive analysis on Palantir’s Valuation for more details on the company’s revenues, valuation, and how it compares with other analytics and software players. You can modify key variables to arrive at your own price estimate for Palantir.

[5/13/2021] Palantir (NYSE:PLTR), a company best known for its big data and analytics tools for government and large corporations, saw its stock decline by around 11% over the last week. Although the company actually posted stronger than expected Q1 2021 results on Tuesday, the stock was likely impacted by two factors. Firstly, investors don’t seem too pleased with the company’s continued over-reliance on the government sector for growth. Second, the broader sell-off in high multiple technology stocks over the last few days also appears to have hurt Palantir. So is Palantir stock looking like a buy at current levels of $18 per share? While we think Palantir stock remains a little expensive, trading at about 24x projected 2021 revenues, and ahead of our $16 price estimate, the risk to reward trade-off is looking much better after the recent correction.

See our interactive analysis on Palantir’s Valuation for more details on the company’s revenues, valuation, and how it compares with other analytics and software players. You can modify key variables to arrive at your own price estimate for Palantir.

Although Palantir’s government business continues to overshadow the commercial operations, with the business growing by 76% year-over-year to $208 million in Q1 2021, the company has made some progress in the commercial space as well. Over Q1, the commercial sales grew 19% year-over-year to $133 million, well ahead of the 4% growth rate it clocked in the previous quarter. Revenue per commercial customer is also picking up, rising by about 29% compared to last year. More significantly, revenues from the top 20 customers grew even faster at 34%, indicating that loyalty is strong, with customers seeing more value in the company’s offerings. The outlook for the commercial business should also look up, considering that Palantir is significantly hiring for sales positions and recently formed a sales partnership with enterprise computing behemoth IBM. Moreover, the overall economics of Palantir’s business is looking better, with adjusted gross margins rising to 83% from 75% last year, with the company raising its adjusted free cash flow guidance for the full year, from breakeven to in excess of $150 million.

[3/26/2021] What’s Happening With Palantir Stock?Palantir stock (NYSE:PLTR) has declined by about 40% from its February highs, currently trading at around $22 per share. The decline is driven in part by the broader sell-off in high growth stocks, mixed December quarter earnings, and the expiration of the company post-IPO lock-up last month, which has enabled insiders to sell shares. Separately, recent comments by the company’s CEO asking investors with a short-term focus to consider other stocks are also likely to have hurt the stock. So does Palantir stock look like a buy after this correction? We don’t think so. While the revenue outlook remains quite strong, with the company on track to grow at 30% plus levels each year over the next two years, the company’s valuation multiple is too high, in our view, with the stock trading at about 28x forward revenues. Palantir is also not yet profitable, despite the fact that it has been around for around 17 years now. Separately, the company is getting more dependent on government customers, rather than scaling up its corporate user base. For perspective, over Q4 2020, government revenue grew by 85% year-over-year to around $190 million, while the commercial revenue expanded just about 4% year-over-year to about $132 million.

See our interactive analysis on Palantir’s Valuation for more details on the company’s revenues, valuation, and how it compares with other analytics and software players. You can modify key variables to arrive at your own price estimate for Palantir.

[2/17/2021] Palantir Stock UpdatesPalantir (NYSE: PLTR) stock declined by about 13% in Tuesday’s trading and is down by almost 25% over the last 5 trading days. The sell-off is largely driven by a mixed December quarter earnings report. Although Palantir’s quarterly revenues came in stronger than expected, it posted a quarterly loss. Palantir’s revenue guidance for the full year 2021 was also lower than expected, with the company expecting sales to grow at over 30%, slowing significantly from the 47% growth rate it saw in 2020. ^[1] Although 30% growth isn’t bad, Palantir’s stock is priced for higher growth, trading at almost 35x forward revenues. Secondly, the company doesn’t seem to be reducing its dependence on government space. Over Q4, government revenue grew by 85% year-over-year to around $190 million, while the commercial segment underperformed with revenue growing just about 4% year-over-year to about $132 million. Separately, Palantir also has a post-IPO lock-up period expiring later this week, and this is expected to increase the number of shares available for trading. It’s possible that this is also putting pressure on the stock.

See our interactive analysis on Palantir’s Valuation for more details on the company’s revenues, valuation, and how it compares with other analytics and software players. You can modify key variables to arrive at your own price estimate for Palantir.

[1/20/2021] Up 2.5x Since Its IPO, What Really Changed For Palantir Stock

Palantir (NYSE: PLTR) stock had a solid run since last November, rising from levels of $10 to around $25 currently, after trading relatively flat in the weeks following its public offering in late September. So what has really changed for Palantir stock in recent months to justify this change?

Although sectors such as cloud-based software and big data and analytics have been much sought after with investors through Covid-19, Palantir was one of the few software names that saw little movement post its IPO. The stock looked like a decent value back in October trading at roughly 15x projected 2020 revenues. The reasonable valuation, slightly stronger than expected Q3 2020 earnings published in November, and a series of contract wins (albeit small) likely helped the narrative around the stock, helping to build momentum and gain visibility with investors. Moreover, investors seem to be appreciating Palatir’s efforts to shift from a highly customized, time-consuming model that relies on engineers to configure, maintain, and upgrade its tools, to a slightly more standardized model. For instance, on its Form S-1, the company noted time required for its software to get up and running declined more than five-fold since Q2 2019 to an average of 14 days in Q2 2020. The standardization and lower resource usage are beginning to reflect on the company’s margins. Over Q3 2020, Adjusted Gross Margins expanded to 81% up from 70% last year. Such standardization should also help the company scale up its customer base particularly in the commercial space, where the company estimates its addressable market at about $56 billion. ^[2]

That said, Palantir does look expensive at current valuations trading at over 30x projected 2021 Revenue presently. See our interactive analysis on Palantir’s Valuation for more details on the company’s Revenues, current valuation, and how it compares with other analytics and software players.

[1/7/2021] Why Did Palantir Stock Decline 20% Over The Last Month?

The stock price of big data and analytics player Palantir (NYSE: PLTR) is down by about 20% over the past month. Although the company has seen some positive developments in recent weeks, including a new two-year contract with the UK National Health Service and a renewal of a previous deal with the U.S. Army that is valued at about $114 million for a year, the stock is being weighed down by a couple of factors. Firstly, some sell-side analysts have turned bearish on the stock, citing its high valuation. Palantir is up around 2.5x since its IPO and trades at about 28x projected 2021 Revenue. Secondly, Palantir’s IPO lockup period – through which insiders are forbidden to sell their holdings – will expire following its next earnings release, likely in mid-February. While Palantir went with a direct IPO that enabled insiders to sell 20% of their holdings at the time of listing, they will be free to sell the other 80% of their holdings as the lockup expires, boosting the supply of the stock. It’s possible that this could also be weighing on the stock.

See our interactive analysis on Palantir’s Valuation for more details on the company’s Revenues, current valuation, and how it compares with other analytics and software players.

[12/4/2020] Palantir Stock’s 2x Rise Isn’t Warranted

Palantir (NYSE: PLTR) stock has seen some big moves in recent weeks. While the stock had a muted debut post its September IPO, partly due to its direct listing that enabled insiders to sell their holdings, bolstering initial supply, the stock has more than doubled over the last one month, rising from levels of around $11 in early November to about $24 currently. So what has been driving the stock in recent weeks? While there hasn’t been a big change to the company’s fundamental picture to warrant such a jump, a combination of high retail investor interest in big data and analytics companies and marginally better than expected Q3 2020 earnings figures likely helped the stock. Over Q3, Revenues rose 52% year-over-year as the company continued to gain ground in the Government vertical (revenue up 68% year-over-year) with Commercial sales growing 35%.

While we thought Palantir’s valuation was attractive at levels of about $10 (see our comparison of Palantir and Snowflake below), we think its richly valued right now. Palantir now trades at about 40x projected 2020 Revenues. While this is still behind the likes of Datadog (which trades at 50x estimated 2020 Revenues) and Snowflake (over 150x), Palantir does have some unique risks. Firstly, Palantir typically benefits from significant economic and geopolitical uncertainty, and the Covid-19 pandemic and the related recession were likely big drivers of growth this year. However, with the availability of a highly effective Covid vaccine looking likely by early 2021, things could start to return to normal, potentially hurting growth. Secondly, Palantir remains highly dependent on government contracts (about 55% of total Revenue) – particularly in areas related to surveillance and national security – causing transparency and perception issues. Palantir’s most recent report indicates that the company is actually increasing its exposure to this space. Also, as we’ve noted previously, Palantir’s products don’t scale as seamlessly as other SaaS players, as they need to be adapted to the unique needs of customers. This could also hurt long-term growth.

See our interactive analysis on Snowflake’s Valuation and Palantir’s Valuation for more details on the two companies’ valuation.

[Updated 11/9/2020] Why Did Palantir Stock Soar?

Palantir (NYSE: PLTR) stock rallied by about 35% over the last week, trading at levels of about $14 per share, after remaining largely listless post its late September debut. Big data and analytics is a hot sector at the moment, though investors have been on the fence about Palantir’s stock, given its high exposure to government contracts and also due to questions regarding the company’s ability to scale-up its user base. While it’s difficult to pinpoint what exactly caused the jump last week, there could be a couple of factors.

Through Covid-19, Palantir has been seeing higher traction from the public health space, with its services used to track Covid-19 data from hospitals and to trace the spread of the virus. The company is also developing tools to help authorities with the logistics related to Covid vaccines. Last week it was reported that the company was in talks with the U.K government to support its contact tracing efforts in the country. This could give investors some confidence that the company is diversifying its revenue streams to an extent within the government space to areas that have lower transparency and perception issues. With the company’s Q3 earnings due on November 12, investors are likely anticipating a strong quarter.

[Updated 10/21/2020] Snowflake Vs. Palantir

The last month saw Palantir (NYSE: PLTR) and Snowflake (NYSE: SNOW) – two relatively high-profile software players go public. Snowflake’s software enables organizations to manage and analyze large quantities and diverse types of data across public clouds such as Amazon’s AWS in a single, easy-to-use platform. Palantir offers big data and analytics solutions primarily used by governments and intelligence agencies, although it has been expanding its presence in the commercial space.

While the two companies are focused on big data, investors are valuing them very differently. Snowflake stock trades at over 120x projected FY’21 Revenues (FY ends January) while Palantir trades at just about 15x projected FY’20 Revenues (FY end December). Does this make sense? How do the companies compare in terms of business models, revenue growth rates, and margins? We provide more details below.

See our interactive analysis on Snowflake’s Valuation and Palantir’s Valuation for more details on the two companies’ valuation.

Revenues & Growth Rates

Palantir’s Revenues grew by 24% to about $740 million in 2019 and growth is likely to pick up to levels of over 40% in 2020 as Covid-19 related disruptions increased demand for the company’s services. In comparison, Snowflake saw Revenue grow 173% from $97 million in FY’19 to about $265 million in FY’20, although the growth rate is likely to slow down to roughly 110% over the current fiscal, based on consensus figures. Overall, Snowflake’s Revenues should grow at a higher rate compared to Palantir, considering its SaaS-based model which can scale to a large base of customers with much less customization. Palantir, on the other hand, needs engineers to adapt its tools to the unique needs of customers. Snowflake had over 3,100 customers as of July 2020, compared to Palantir which had about 125 customers as of its last fiscal year.

Profitability 

While Palantir is slightly ahead in terms of profit margins considering that it is the more mature company (Palantir was founded in 2003 versus Snowflake which was founded in 2012), we expect Snowflake to be more profitable in the long-run given its relatively more standardized product and lower customer acquisition costs. Snowflake posted a Gross Profit Margin of 62% for the first six months of FY’21, with Operating Margins standing at -72%. Palantir’s Gross Margins stood at about 72% over the first six months of 2020, with Operating Margins coming in at about -35%.

Valuation 

Snowflake stock has more than doubled from its IPO price of $120 to about $250 currently, valuing the company at about $70 billion. Palantir, on the other hand, hasn’t moved too much since its listing and is valued at about $15 billion. There are a couple of reasons for Snowflake’s premium valuation. Firstly, the company is growing much faster than Palantir and should also be more profitable in the long-run given its highly scalable delivery model. Investors have also been paying a big premium for growth stocks. Secondly, unlike Palantir which has high exposure to government contracts – particularly in areas related to surveillance and national security – causing transparency and perception issues, Snowflake’s business is focused on more commercial customers.

That said, Snowflake has considerable valuation risk, considering that it trades at about 122x projected FY’21 revenues, compared to Palantir which trades at just about 15x projected 2020 Revenues. The story could change quickly. If Snowflake’s growth rates slow down, with the company facing competition from cloud majors such as Amazon and Google who offer their own data warehousing solutions, investors could re-think its valuation. On the other side, investors could double down on Palantir stock if they see more proof points indicating that the company is making progress in the commercial sector, via high-profile deals or stronger Revenue growth.

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Notes:

1. Palantir Press Release [↩]
2. Palantir Form S-1 [↩]

Source: Forbes