Palantir: Explaining The Unexplainable

seekingalpha2021-08-26

Summary Palantir reported solid YoY improvements, but its QoQ trajectory was disappointing. Profitability decreased compared to last quarter, and stock-based compensation generated losses for the ...

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精彩评论

dw321
2021-08-27
dw321
Ok
KL8388
2021-08-27
KL8388
I still believe it will go to the moon
maOQiu
2021-08-27
maOQiu
To the moon
- maOQiu:
  [财迷]
Tulip_Tokki
2021-08-26
Tulip_Tokki
Who’s adding more stocks to Palantir?
loveena
2021-08-26
loveena
Everyday PLTR
Minhoshuting
2021-08-26
Minhoshuting
Ok

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(PLTR) reported its Q2 results on August 12 and investors must have been pleased since the stock jumped over 10% that day. However, I find myself disagreeing with this assessment of Palantir's results. While there were some positive trends year-on-year, profitability and some measures of growth are slowing down quarter-on-quarter. Furthermore, the company keeps losing money due to stock-based compensation. Palantir's saving grace is its fast-growing revenues, but even these will have to slow down eventually. While I like the business, I am still not completely sold on Palantir as an investment.\nRecent Results\nPalantir moderately beat estimates in Q2. Revenue was 4% higher than expected, and earnings were 16% above estimates. Overall, Palantir grew revenues 49.1% YoY, which is still impressive. Let's give credit where credit is due. Palantir has done well to deliver consistent results that are in line with expectations and show glimpses of a better future.\nI'd say the most impressive metric from Q2 was the growth in Foundry in the US, the company's commercial platform. Year on year, this segment grew a whopping 90%. This also represents an acceleration when compared to Q1, which saw Foundry revenues grow 72% compared to the first quarter of last year.\nOn the profitability side, Palantir also posted some \"encouraging\" metrics.\nSource:Investor Presentation\nOn the surface, Palantir did quite well this quarter, compared to last year. The company is actually cash flow positive, bringing in over $200 million this quarter. Furthermore, the company has increased their full-year guidance to over $300 million in FCF. Operating margins, on the other hand, remain stable at 31%.\nThe bottom line is that Palantir is, at least, delivering on what it has promised. But for a company that is so well regarded by investors, perhaps a little more should be expected.\nAll that glitters ain't gold\nWhile Palantir's earnings were not bad, I was surprised to see the stock take such a big jump on earnings day. If we look deeper into the numbers, a few concerning trends don't bode well for Palantir's long-term prospects.\nMost notably, I have to point out that Palantir's profitability was down by most metrics if we compare it to Q1. Free cash flow margin, for example, which came in at 13%, was noticeably worse than in Q1, when the company achieved a 44% margin. The same is true of operating margin. Slides show impressive YoY growth, but the operating margin has decreased 300 basis points quarter on quarter. Contribution and gross margins were also down slightly quarter-on-quarter.\nEven the growth story has its flaws. While the company is doing incredibly well domestically, Palantir's Foundry revenues only increased 28% internationally. The company is struggling to make an impact abroad.\nBut what continues to be the biggest concern is stock-based compensation, and the latest quarterly results have done nothing to dissipate the fears that SBC is eroding shareholder value. Rather, it has reaffirmed them.\nIn Q2, stock-based compensation increased by $32 million. Meanwhile, the actual operating income was flat, which means that the company's real losses increased roughly by$32 million. Not only is Palantir losing money because of SBC, but it is also losing proportionally more money than before. Can Palantir turn this around? That depends on how we define Palantir.\nWhat is Palantir?\nThat's what we don't know. Palantir has been around for over a decade, but it has only been under the scrutiny of the public eye for about a year. It still doesn't seem to be clear to anyone, and perhaps even Palantir's management, what the company is.\nPalantir's stock trades at a very high valuation as if Palantir is going to be a hyper-growth company for years to come. But there are problems with this theory. Palantir isn't your classic SaaS company. They can't just sell their products and enjoy a steady stream of revenues without putting in much work. As I have talked about before, Palantir relies on having a team of experts that can help its customers with each specific project. In many ways, Palantir is like a consulting firm.\nIf that's the case though, one must wonder just how fast Palantir can grow, and also just how much the company can reduce its stock-based compensation. Palantir's growth, for now, is severely limited in terms of demand and supply. Palantir's services can only realistically be used by government agencies and large corporations. I am aware that the company is making moves to push Foundry on smaller businesses, but this won't pay off any time soon. On the other hand, there's a limit to how much Palantir can grow due to its workforce. Essentially, for each new dollar of revenue, they need to add more salespeople/consultants. And from what we've seen, this also severely limits profitability, since Palantir employees receive such high stock-based compensation. This may indeed be necessary for the company to retain the best talent, but it doesn't mean it's good for investors, especially if the current trend continues.\nIf Palantir isn't a high-growth tech company though, what is it? As has been pointed out already, Palantir is on route to becoming a major government contractor. These companies often have low margins with stable and predictable revenues and limited growth potential. In many ways, Palantir could be seen as a utility, since it provides the very necessary infrastructure to the government.\nI know this assessment will displease many, so let me split the difference. Palantir is an interesting company with a lot more potential than a utility. However, it is quite clear that Palantir can't become, at this moment, a mega-cap tech stock. Its business model and target customer are just too limited.\nTakeaway\nIn conclusion, defining Palantir is a difficult task, which is why interpreting its results is also hard. I find these results unencouraging, given the slowdown in profitability and growth in line with estimates. While Palantir is a great business, it's not going to meet investors' expectations of becoming a trillion-dollar company in the next decade. Palantir is not AlphabetInc.(NASDAQ:GOOGL)or Facebook,Inc. (FB). Its business model, for now at least, is limited, and the latest results don't show a move in the right direction. I'd consider investing in Palantir if the valuation reflected this fact, but it doesn't. There is a lot of speculation going on with Palantir, and though I concede that there is a possibility that Foundry/Gotham becomes the tool of the future for most businesses around the world, it is simply too much of a gamble at this point.","kind":null,"is_publish_news":true,"is_publish_highlight":true,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":819990410,"gmtCreate":1630025645330,"gmtModify":1704954751118,"author":{"id":"3578904373237924","authorId":"3578904373237924","name":"dw321","avatar":"https://static.tigerbbs.com/4425061ef8f6492240624ef8525e56af","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3578904373237924","authorIdStr":"3578904373237924"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/819990410","repostId":1100506517,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":810756766,"gmtCreate":1630018789255,"gmtModify":1704954548558,"author":{"id":"3576828470442075","authorId":"3576828470442075","name":"KL8388","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3576828470442075","authorIdStr":"3576828470442075"},"htmlText":"I still believe it will go to the moon","listText":"I still believe it will go to the moon","text":"I still believe it will go to the moon","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":0,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/810756766","repostId":1100506517,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":810459751,"gmtCreate":1629995102273,"gmtModify":1704954399088,"author":{"id":"3553680669291881","authorId":"3553680669291881","name":"maOQiu","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":7,"crmLevelSwitch":0,"idStr":"3553680669291881","authorIdStr":"3553680669291881"},"htmlText":"To the moon","listText":"To the moon","text":"To the moon","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":1,"repostSize":0,"link":"https://laohu8.com/post/810459751","repostId":1100506517,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5658467,"gmtCreate":1629995109502,"gmtModify":1631891317701,"authorId":3553680669291881,"author":{"id":3553680669291881,"idStr":"3553680669291881","authorId":3553680669291881,"name":"maOQiu","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":7,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":810459751,"type":1,"supId":0,"prevId":0,"content":"[财迷]","text":"[财迷]","html":"[财迷]"}],"langContent":"EN"},{"id":810412682,"gmtCreate":1629991698346,"gmtModify":1704954348788,"author":{"id":"3574988193271140","authorId":"3574988193271140","name":"Tulip_Tokki","avatar":"https://static.tigerbbs.com/37d27f6f7b065f1075567d6ef93dd545","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"3574988193271140","authorIdStr":"3574988193271140"},"htmlText":"Who’s adding more stocks to Palantir?","listText":"Who’s adding more stocks to Palantir?","text":"Who’s adding more stocks to Palantir?","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/810412682","repostId":1100506517,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":810576927,"gmtCreate":1629989028069,"gmtModify":1704954288890,"author":{"id":"3561892756320244","authorId":"3561892756320244","name":"loveena","avatar":"https://static.tigerbbs.com/d991c10b28d0043e55514f93132845bc","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3561892756320244","authorIdStr":"3561892756320244"},"htmlText":"Everyday PLTR","listText":"Everyday PLTR","text":"Everyday PLTR","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":2,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/810576927","repostId":1100506517,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":810541776,"gmtCreate":1629988368895,"gmtModify":1704954271904,"author":{"id":"3577450970953718","authorId":"3577450970953718","name":"Minhoshuting","avatar":"https://static.tigerbbs.com/16ab92b2914bd064ccd8620ef1d430ff","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"3577450970953718","authorIdStr":"3577450970953718"},"htmlText":"Ok","listText":"Ok","text":"Ok","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/810541776","repostId":1100506517,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":39,"commentSize":8,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 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