But its hard to find fault when the company is growing both sides of the business. Despite the long 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. 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. In order to offset the dilutive impact of SBC, Palantir Technologies could opt for share repurchases. from when they initially went public and their dilution ranged from 10-20% (most in the low 10s).What does this mean? Further, CEO Alex Karp posited a 40% revenue growth for FY21 and a sustained 30% y-o-y growth up to FY25. Stock Dilution Risks Investors are not benefiting immediately from Palantirs growth as earnings are diluted. The U.S. Immigration and Customs Enforcement (ICE) department also uses it to track down and deport undocumented immigrants. Forget Tesla! Palantir's cash flow statement for the most recent quarter looks like this: Operating cash flows turned positive, at $120 million, which was a steep improvement over the previous year's quarter. In the first nine months of 2021, its revenue rose 44% year over year to $1.11 billion, while its net loss narrowed from $1.02 billion to $364 million. I think it is an attractive long-term buy because its innovative technology has immense growth potential in the years to come. According to Tipranks, Jonathan is among the top 0.5% of bloggers (as of January 10, 2022: https://www.tipranks.com/bloggers/jonathan-weber). Leo Sun owns C3.ai, Inc. and Palantir Technologies Inc. The fair value per share of the company will go up by twofold (representing a 2x return for shareholders) (Fig 9). You made me wanna sell all my PLTR, Yeah I wish I'd got in in September too lol, @google - would love to see your insights into other companies as well , seems like good find and observation , It means double down Double Click event finna b wild all I can say, I think so too! Foundry has seen an incredible increase in commercial adoption this year, with the number of private sector customers rising by about 135% as of September 30. 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. There has been NO true dilution A buyback program could help offset the dilutive impact of SBC, which naturally benefits shareholders, as EPS growth will improve, all else equal. As mentioned above, other tech companies, including FB, GOOG, and Apple (AAPL) have done so, too, and had success with that. Of particular concern was the approximately 17.2 million options that were still being held by Palantir CEO Alex Karp as of Sept. 30. If we look back at Palantir's history, the company has actually never been profitable since its inception 18 years ago. No cash balance or cash flow is included in the calculation. Facebook (FB) or Alphabet (GOOG) (GOOGL) when they were smaller. If you want to reach out, you can send a direct message here on Seeking Alpha, or an email to jonathandavidweber@gmail.com. Intuitively, we don't like it, but it's hard to see at a glance. Making the world smarter, happier, and richer. We must continue to watch SBC and dilution like hawks. Chris Lauis acontributing author for InvestorPlace.com and numerous other financial sites. 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. 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. Palantir is, I believe, very well positioned from a tech perspective, the company has a wide moat, is well-connected to customers in both the government sector and the private sector, and PLTR is active in an absolute growth market. COO Sankar said, We have a very unique opportunity and a diverse footprint that we believe continues to uniquely position us deliver on the necessary transformation in healthcare delivery from operational excellence to complex clinical care.. Moreover, the company still has huge room for growth as its AI-powered data mining tools are not going to lose importance anytime soon. Perhaps it would be easier for investors to accept Palantirs dabbling in gold and bitcoin if it wasnt for the continuing dilution of shares that is happening as management exercises warrants. , Palantir recently made a large purchase of gold bars. Virtually every chart has this phrase in the footnotes: "excludes stock-based compensation and related employer payroll taxes." I am bullish on PLTR stock. Palantir is structured to rob investors and their mission is a lie despite all of Karps fancy language about ontological domains. Share dilution from 244 million at IPO to 1.6 billion. Following which, we can identify that Palantir will be growing at a 32.9% CAGR from US$1.5B in FY21 to US$8.4B in FY27 (hitting the target of US$5B at FY25 too). Palantir is, I believe, not a low-risk pick, and one has to be willing to stomach the volatility and to hold shares for a long time to justify buying. The information is not intended to be used as the basis of any investment decision by a person or entity. Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article. One of, if not THE most heavily compensated CEO of any US company in 2021. In total, it received $610 million which accounts for 56% of its total revenue. He shares his stock picks so readers get original insight that helps improve investment returns. From that standpoint, Palantirs future prospects make the dilution seem less intimidating. 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. Louis Navellier and the InvestorPlace Research Staff. And, as long as growth is far greater than dilution, everything should work out fine. 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 am the founder of Growth Stock Renegade, a premium service on Seeking Alpha's Market Place. Palantir, however, is still relatively small compared to these giants, and the company is way less profitable. It has a powerful A.I. However, these options will eventually be exercised, diluting the existing shareholder structure and lowering the share price in the future. In fact, based on the companys FCF projections. Further, backtesting allows the security selection methodology to be adjusted until past returns are maximized. Instead, it's a drag. Eng, Go to company page 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. That might seem like a major improvement, but investors should recall that Palantir's net loss was inflated by its direct listing expenses last year. Start your free two-week trial today! The companys valuation could thus be well above $20 billion if public investors are willing to buy the shares where theyve traded most recently in the private market. Palantir is pursuing a direct listing rather than a traditional IPO, meaning its not raising capital and is instead allowing existing stakeholders to sell shares to new investors. For now, investors should assume the stock is stuck in a $22 $27 trading range because earnings per share are not expanding. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. In 2004, when we looked at the available technology, we saw products that were too rigid to handle novel problems, and custom systems that took too long to deploy and required too many services to maintain and improve. News Events. Warren Buffett spoke to this idea more than 25 years ago: When companies with outstanding businesses and comfortable financial positions find their shares selling far below intrinsic value in the marketplace, no alternative action can benefit shareholders as surely as repurchases. (You are fully protected by Seeking Alpha's unconditional guarantee.). 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. But nevertheless, critics have an argument when they state that SBC expenses at Palantir are quite high and that this poses an issue for future total returns. 5 Hypergrowth Stocks With 10X Potential in 2023. Best-of-breed growth stock ideas targeting oversized returns. Here I do see a stronger relationship between share count and price. 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%. Let's use the same basic approach to look at three more companies. We believe there are no alternatives that can compete on cost, speed, and performance.. A new tech publication by Start it up (https://medium.com/swlh). 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. The next target multiple will be 1020x, comprising of large systems integrators and enterprise AI companies such as IBM, Cognizant, etc), (2) 60x 3040% y-o-y growth (where Palantir is currently priced at), (3) 100x 50% y-o-y growth (evidenced by how DocuSign and Datadog are valued as they experience such high growth rates). With the dilution effect accounted for (representing over US$3B in dilution across 246M shares), Palantirs true fair value per share will be priced at US$20.75 via EBITDA multiple method and US$20.18 via terminal growth method. Today, Palantir trades at $22, for a $42 billion market capitalization. Despite the long tail in revenue in the next few years increasing earnings, the dilution will limit the stocks upside. On the other hand, CRM increased share count rather substantially and didn't quite make it over 300% price appreciation. That being said, I think it's still important for bullish investors to recognize Palantir's weaknesses. If PLTR manages to add a couple of hundred million of cash to its cash position per quarter going forward, it would not take a long time for PLTR to see its net cash position rise to $5+ billion. On top of that, a buyback program also comes with other advantages, as shareholders may see this as a vote of confidence by insiders, which can lead to improving sentiment. Still, that valuation comparison is not fair. It's my #1 issue with PLTR. Banks may justify the return on investment (ROI) based only on the speed of the installation. Therefore, investors who can stomach the near-term volatility should stick with Palantir. In an effort to guard against black swan events, Palantir recently made a large purchase of gold bars. Invest better with The Motley Fool. Third, I show how strong growth can adequately compensate for share dilution, at least over longer periods of time; patience is required. If history repeats itself, then PLTR stock could set up as a profitable trade. No representations and warranties are made as to the reasonableness of the assumptions. Theres likely a few reasons for Palantir to favour SBC over salary. Again, I'm almost certain you've heard of PayPal (PYPL), Salesforce (CRM) and Adobe (ADBE). Backtested performance is developed with the benefit of hindsight and has inherent limitations. Upon renewal, the amount may increase. But the good news is that Karp was by far the biggest holder of options. Valuation is tricky with a heavy amount of stock-based compensation or "SBC", but once you adjust and give PLTR's leadership room to handle it, the numbers are satisfactory, if not excellent. can you use cocktail onions in beef stew, larry nordone lexington, sc, annie nightingale binky baker, The U.S. Immigration and Customs Enforcement ( ICE ) department also uses to! Its total revenue is developed with the benefit of hindsight and has inherent limitations ago. Googl ) when they initially went public and their dilution ranged from %... 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