All-seeing and highly controversial, this secretive company could be a good bet for a risky portfolio, but what are the pros and cons of investing in Palantir?
Palantir Technologies (NYSE: PLTR) has made a few headlines this year, such as when it was contracted to help the U.S. Department of Health and the British National Health Service control the flow of coronavirus related data. More recently, however, there was a lot of hype surrounding its filing to become a public company via a direct listing.
Prior to 2020, Palantir was not particularly well-known, and those who did know about it regarded it as a shadowy, secretive company. Yet, as a company that specializes in data analysis, it has managed to rack up a good amount of interest recently. So, we ask if Palantir is a good stock to invest in.
The bull case for Palantir
Palantir’s revenue comes in thick and fast from contracts predominantly agreed with governments. In its first earnings report as a public company, Palantir brought in $163 million from sales to governments, whilst commercial revenue was around $127 million. The data company also brought in a couple of new contracts for Q3 which included a $36 million deal with the National Institutes of Health and a $91 million deal with the U.S. Army to provide research and development for the Army’s research laboratory.
Judging by Palantir’s revenue, it is a company that seems to be growing quickly with reported 52% revenue growth year-over-year. Another plus is that with only 61% of total revenue being generated from the company’s top 20 clients, the revenue stream is becoming less concentrated. The same 20 clients generated 68% of total revenue in 2019.
Palantir is a company that operates discreetly, yet it was instrumental in locating Osama Bin Laden in 2011 and is now a leading contractor for the new Brexit border in the U.K. In fact, Palantir has many surprising deals including one with the Nobel Peace Prize-winning World Food Programme. The company believes that its addressable market is worth $119 billion so it is likely to see more contracts like these in the future.
The bear case for Palantir
For a company that has been around for 17 years, Palantir is still not profitable, though it is improving. Between 2018-2019 revenue grew 25% whilst losses from its core earnings went from $606 million to $564 million. Having just gone public, Palantir spent $847 million in Q3 for stock-based compensation due to its direct listing. Without this, the company would have an unadjusted operating loss of $0.8 million. Still not profitable, but a marked improvement nonetheless.
To continue on the road to profitability, Palantir would need to seriously increase its client base, which currently totals 125 — as last reported in 2019. With such a small number of clients, it has an over-reliance on government contracts to bring in revenue. This presents a unique problem for the company as it is now being linked to ethical issues through its government relationships. For example, the controversial U.S. deportation scheme ran by ICE, uses Palantir technology.
Unfortunately for the company, this presents a PR problem as the nature of deals with government bodies often require less transparency and more secrecy. Furthermore, other commercial company’s are likely to keep Palantir at an arms-length due to employee backlash over ethical concerns, such as what happened with Amazon Web Services and Alphabet back in 2018.
So, should I invest in Palantir stock?
Palantir is an interesting stock to look at, for whilst its technology has been vital for many world-changing organizations, such as the World Food Programme and COVID-19 resources, unfortunately, the company does not have much of a moral compass when it comes to deciding the purpose of its technology. Whilst operating in the grey areas of ethical issues brings in high revenue in the form of government contracts, it could present real problems for attracting a broader range of clients in the future.
- What does ‘Palantir’ mean?
The word Palantir comes from the Lord of The Rings book by J.R.R Tolkien and it is an unbreakable ball of crystal used to communicate with other Palantir wielders or see other parts of the world in the future, present, or past.
- Why Is Palantir Evil?
People have taken a dislike to Palantir as the leaders of the company possess strongly held beliefs about needing more surveillance-tech for the world that we currently live in.
- What is Palantir Gotham?
Palantir Gotham is a platform that Palantir offers to integrate and transform all types of data and then meaningfully connect them into something tangible.
A MyWallSt subscription gives you access to over 100 market-beating stock picks and the research to back them up. Our analyst team post daily insights, subscriber-only podcasts and the headlines that move the market. Get your free trial now!
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in Netflix. Read our full disclosure policy here.