Palantir: The Data Analytics Giant That's Poised for Continued Growth
Is it time to invest?
Summary
Palantir Technologies is a software and consultancy company that develops and sells its in-house software products.
The company predicted a “black swan” in 2021 and kept a crystal balance sheet with no debt.
Like any other company, Palantir faces headwinds of inflation, government regulations, and privacy concerns that could impact its growth and performance in the future.
Introduction
Palantir Technologies is a data analytics and software development company that has gained traction recently for its innovative technology and strong financials. This article will examine the company's finances and business model to determine whether Palantir is a buy for investors.
There are many articles debating whether Palantir is a Software or Consultancy company. Many conclude on the far left or right, but none seem to reach a fair assessment. I believe that Palantir Technologies is a software and consultancy company. It develops and sells its in-house software products, namely Gotham, Foundry, and Apollo, to government agencies and large corporations, helping them to manage and analyse large amounts of data.
Palantir also provides consulting services to these clients, helping them implement and use the software products effectively. This includes providing training, support and custom development services. In addition, the company's data management and analysis expertise make it a valuable partner for organisations looking to leverage their data effectively.
Finances
First, let's examine Palantir's financials. The company went public in September 2020 and saw its stock price skyrocket. In the last 12 months, Palantir's revenue has grown by over 40%, reaching $1.5 billion in 2021. This growth is driven by the company's flagship software, Palantir Gotham, used by government agencies and large corporations to manage and analyse large amounts of data.
The company predicted a "black swan" in 2021 and kept a crystal balance sheet with no debt. Therefore, any further increase in interest rate would benefit Palantir [perhaps not so much for all their clients, which could indirectly affect them].
Business Model
Palantir's business model is based on subscription-based pricing, which means that the company generates recurring revenue from its customers. This is a strong indicator of a healthy and sustainable business.
Furthermore, Palantir's customer base is diversified, with clients in various industries such as aviation, finance, government, and healthcare. This diversification reduces the risk of relying on a single industry or client.
In addition to its strong financials, Palantir's technology is also a significant asset. The company's software is used by some of the most advanced and powerful organisations worldwide, including the CIA, the NSA, and the FBI. This is a testament to the effectiveness and reliability of Palantir's technology.
Risks
There is no such thing as a risk-free investment. However, it is the responsibility of the investor to assess the risk and make decisions based on their conclusion. Like any other company, Palantir faces headwinds of inflation, government regulations, and privacy concerns that could impact its growth and performance in the future. The immediate risks that I see for the company are
Management
Another potential risk is the co-founder and CEO, Alex Karp, an intelligent character fluent in multiple languages. Karp has a background in philosophy and holds a PhD from the Goethe University Frankfurt in Germany. He is famous for his outspokenness and strong views on various political and social issues. He has publicly spoken out against government surveillance and has been vocal in his support for civil liberties. Unfortunately, this unconventional approach that does not conform to the norm is not always the best strategy for winning and retaining clients.
However, under Karp's leadership, Palantir has become one of the most successful and influential companies in the data analytics industry. Karp's leadership has been instrumental in the company's success and helped establish Palantir as a leader in data analytics.
Further Downside
Palantir has diluted shareholders by issuing stock-based compensations to its employees. Although this is typical in the technology industry, it also means that the company's success is closely tied to the talent and expertise of its key employees, particularly its founders and top executives. As a result, if these individuals were to leave the company, it could significantly impact the company's future and lead to further downside.
In addition, given the economic headwinds, it is likely that Palantir's share price will continue to fall. The risk here is minimal for long-term investors with a time horizon of 5-10 years. However, this is a risky and volatile stock for short-term traders.
Although I consider myself a fundamental investor, I use technical analysis to determine my position entry points. Looking at Palantir on a weekly chart, the company is still in a significant downtrend. With earnings season upon us, the catalyst for the stock's upside or downside is just around the corner. The company has missed earnings in the last four quarters and will need some excellent news to convince investors.
Conclusion
In conclusion, Palantir is a buy for investors looking for a growth company with solid financials, a diversified customer base, and innovative technology.
Furthermore, Palantir's technology is used by some of the world's most advanced and powerful organisations, which is a testament to its effectiveness and reliability.
The risks associated with investing in Palantir are minimal at this stage. However, they are still risks that any serious investors should consider. They include the style of the leadership team, in particular, the CEO, Alex Karp. In addition, technical analysis shows a downward trend that has lasted one year and will require some exciting news from the company to reverse.
At the time of writing, I hold a significant portion of my investment in Palantir. Therefore, it is likely that my thesis is biased and should not be taken as investment advice. However, I have been dollar-cost averaging my position since the price reached $12, and my investment is down roughly 20% at the time of writing.