Palantir Is Quietly Making Its Move Higher, Now Is A Good Time To Buy
Nov. 06, 2020 9:10 AM ETPalantir Technologies Inc. (PLTR)25 Comments26 Likes
Summary
Palantir did a direct listing, no road show, no cap raise.
The company is focused on growing its business, not gaming the market.
The numbers of Palantir's business are very positive, it makes US$5 million average per client, and there are many more clients to be had.
We believe that Palantir (NYSE:PLTR) is a buy and hold, and we will explain why in this article. Furthermore, we believe the company is getting bad press which is unwarranted. The various "controversies" surrounding Palantir are not the ones about its business model. For example, people who support illegal immigration into the United States don't like how the Immigration and Customs Enforcement (ICE) uses Palantir to find and catch illegals. This is a political issue which has nothing to do with Palantir. The company is just providing the tools to law enforcement, and those tools are very effective. So Palantir gets a lot of bad press based on this, and it is not correlated to its core business which is very positive. Let's explain.
Palantir is a big data analytics company that's half SAAS and half consulting. When you hire Palantir, there is a $100,000 startup fee and it sends one of its agents to work in your office physically to implement the product. The average revenue per customer is US$25 million, according to Wapo:
The records show that Palantir has just 125 corporate and government customers. Two-thirds of its revenue comes from its top 20 customers, raising concerns that it could lose business as long-running government contracts are renegotiated. It generated an average revenue per customer of $24.8 million last year.
The Palantir IPO lockup is 20% allowed to trade immediately 80% in the future. But the company timed the 80% to be released right around when it will release its numbers, why do you think it would do that? It is obviously expecting some good things coming. And we aren't the only ones with that opinion.
Jim Cramer of CNBC says it's finding its place and can go to $12 + while he may not be the most credible source, just the fact that he's bullish on Palantir can only be helpful to the stock (as a growing generation of Robinhood traders continues to be bombarded with CNBC cheer fests).
COVID-19
COVID was bifurcated into groups of companies that were either bankrupt or helped by the invisible Scourge. Palantir seems to be a COVID + company having many benefits for its business. Not only there is greater demand for its product, but it is also involved in COVID-specific operations, such as operation Tiberius, which is the plan to roll out COVID vaccines in the United States, an extremely complex logistic challenge:
In a recent story from the Wall Street Journal, Palantir is currently working on a project, called Tiberius, to help manage the rollout of the Covid-19 vaccine, which will certainly be extremely complicated. ...
Also, the company is picking up COVID-related contracts that involve data modeling, something Palantir is well suited to do. Palantir has the right mix of experience with massive projects and effectively analyzing huge amounts of data. It does not rely on government contracts, but those contracts do provide a use-case for large enterprises.
Other COVID-19-related contracts include one to the US government for "Emergency Response":
Federal health officials are reportedly using Palantir Technologies' Gotham big data analytics platform in their efforts to mount a response to COVID-19. Forbes.com reported late last week that a unit within the U.S. Department of Health and Human Services (HHS) awarded Palantir a $17.3 million contract in early April for "COVID-19 emergency response."
Isn't it interesting how big tech is profiting from COVID? But Palantir is not just another Silicon Valley software startup, what Microsoft (MSFT) was 30 years ago. It's much more than that - it is a company that defines what big data analytics is and should be.
Just recently, Palantir is in talks with Britain to provide reliable contact tracing for COVID-19.
By the numbers
In Palantir's S1 filing, it describes some numbers and a potential customer market of $119 billion:
Palantir's filing says that 40% of revenue is generated in the U.S., with 60% generated internationally. The company says that it has clients in 150 countries (of course, reconciling 150 countries with 125 customers is left as a math exercise for the reader).
Palantir argues that its total addressable market is $119 billion in the world. $119 billion is a big market for a company that is now public for a short time. It will take time for Palantir to grow to that level, but the point of Alex Karp in his note to shareholders is that Palantir delivers results. The more the system cracks and falls apart, Palantir software can pick up the pieces and keep the civil society together.
Intellectual High Ground
The founders of Palantir are well-educated, high-IQ science geeks. They understand complex systems and how to tackle handling data in them. CEO and Founder Alex Karp explains it best in his own words:
The systemic failures of government institutions to provide for the public - fractured healthcare systems, erosions of data privacy, strained criminal justice systems, and outmoded ways of fighting wars - will continue to require both the public and private sectors to transform themselves. We believe that the underperformance and loss of legitimacy of many of these institutions will only increase the speed with which they are required to change.
We can't paraphrase this because it's explained clearly in plain language that anyone can understand. This is the intellectual high ground that Palantir has; an understanding of how the system works and a solution to solve its problems, one customer at a time.
Trading liquidity
According to securities broker LevelX, the average daily trading volume for PLTR is 45 million shares, which is a good amount considering the public float is 725 million shares. The fact that it is actively trading and the price is maintained is positive. Also, according to iborrowdesk.com, the short rate is 3.1% and the available shares to short is 2.7 million, again a small number.
Palantir - the Anti-Hype machine
Palantir is not a company based on hype and marketing. Until the recent IPO, it remained in the shadows. In the Pre-IPO business, there was a joke about Palantir that went something like "You may not know Palantir, but Palantir knows you." It remains in the shadows seemingly allergic to traditional pump mechanisms employed by companies like Facebook (NASDAQ:FB) and Twitter (NYSE:TWTR).
Let's take a look at the stock since IPO.
ChartData by YCharts
Any speculation on a stock going higher is based on hope. No matter how deep analysis we look at, there's no telling what will happen in the future, even with analytics as strong as Palantir Foundry. However, based on available data, and based on the price holding up in the face of negative news, controversy, and insider selling (even though only 20% can sell from day 1 of the IPO), we believe that Palantir has formed a base and will go higher.
Palantir has the intellectual high ground, we aren't betting on a traditional "fad" such as social media, blockchain, or something else. Palantir solves real problems, it's a need, not a want. The world is becoming more unstable. The upcoming elections are just one example, but there are many. Palantir provides a solution for companies to deal with these challenges in an informed and educated manner.
And who knows, maybe Palantir's growing customer base will also like the stock?
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