Palantir: The Dilution Is Real

seekingalpha2021-09-06

Summary Palantir stock has been heavily diluted since it went public in a 2020 direct listing. The company has an admirable competitive position in providing data services to Federal agencies, but is...

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精彩评论

bluesea2021
2021-09-13
bluesea2021
I would buy it in the price range of 20 to 23
maOQiu
2021-09-08
maOQiu
To the moon
- maOQiu:
  [财迷]
Jypsy
2021-09-07
Jypsy
👍
glorify
2021-09-07
glorify
It is pretty solid in its core business proving Data software to large agencies government. Toughthere' s good sign of revenue & profit, however, share dilution isReal. Shares buy back & it's expenses need to put under control. Palantir is for long term investment . 💪👌Keep the good going.
LEEPK
2021-09-07
LEEPK
Good
DanVI
2021-09-07
DanVI
Hopefully they start buying back shares in future!! Pls like and comment! Thanks 🙏

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Bouncing between $21.50 and $26.50 ever since May, it appears to be stuck. Granted, if you'd bought at the lower end of that range, you'd be up a handsome 23% by now. But if you had bought at the all-time high of $39.58, you'd be hurting. As of this writing, PLTR stock was sitting at about $26.6, down 32% from that elevated price.\nOn the surface, Palantir's recent stock moves have been perplexing. Palantir's most recent earningsbeat on both revenue and EPS,yet the stock has not gone anywhere near its previous highs. What are the markets thinking here?\nIt's not easy to say. Mr. Market can be a fickle little fellow, and his behavior isn't always dictated by fundamentals. But one thing that may be influencing Palantir's tepid performance as of late is dilution. In the third quarter of 2020, Palantir had905 million shares outstanding. By the second quarter of 2021, that figure hadgrown to 1.89 billion. As I wrote in arecent Tweet, that's a greater than 100% increase in shares outstanding (1.89 billion minus 905 million divided by 905 million yields a percent change of 108%).\nAs of Palantir's recent earnings release, it had 1.89 billion shares outstanding - a 108% increase from the third quarter of 2020. The period covered here is the trailing 12-month period, so we're talking about share countdoublingin just a year.\nThat's a fair amount of dilution. And it is quite likely that it is affecting the stock price. Palantir insiders are known to have unloaded stock immediately after their lockup period expired. According to Simply Wall Street, insiders sold $440 million worth of shares in the first three days of trading, and $600 million more in the week after that. So, not only are new shares being issued, they're being added to the public float. This sort of thing tends to depress stock prices because it increases the supply of shares. Unless demand increases, a stock's price will go down during a wave of insider selling.\nThat is why I've changed my rating on Palantir from bullish to neutral. I think that this stock probably will enjoy upside in the long run if the dilution eases off, but this year, it will be difficult for PLTR to run ahead of the selling pressure it's under. At $22, I was quite bullish on the stock, but at $26.6 I think it's near the top of the range it's likely to trade in for quite some time. Accordingly I'll develop a neutral thesis on PLTR in this article, arguing that investors are unlikely to lose their shirts on it but probably won't realize massive gains (in the short term) either.\nExamining Palantir's Dilution in Detail\nWhen we talk about a company's share count, there are three possible things we could be referring to:\n\nShares outstanding.The number of shares that currently exist. When calculating diluted EPS, this includes options and convertible securities.\nPublic float.The number of shares that are available to be publicly traded.\nFully diluted shares.The number of shares that would exist if stock options and convertible securities - including those not yet vested - were to be exercised.\n\nIn Palantir's case, these share counts are not identical. Usually, shares outstanding used for diluted EPS are the same as fully diluted shares, but Palantir's definition of \"fully diluted shares\" includes stock warrants that don't actually exist yet. Primarily, stock options that have been granted but won't be issued until employees hit their performance targets. The company currently has250 million warrants that won't technically exist until employees hit these milestones. These do not make it into the company's shares outstanding count - not even in the diluted EPS calculation.\nPLTR's weighted average shares outstanding as of the most recent quarter was 1.89 billion. Its float, according to FinViz, was 1.63 billion. Diluted shares were the same as shares outstanding (1.89 billion) in the Q2 press release, although an earlier filing suggests that the count reaches 2.17 billion if you include options and warrants that can't be exercised until way later. If you add 250 million to 1.89 billion, you get to 2.14 billion - almost the same as the fully diluted share count. This corroborates my theory that the un-vested warrants account for the difference between shares outstanding and fully diluted shares.\nBased on these numbers, we can evaluate how much Palantir's equity has been diluted in the past four quarters.\n\nAs mentioned earlier, shares outstanding has gone from 905 million to 1.89 billion, a 108% increase. PLTR had as few as 574 million shares in 2019. We've seen a 229% increase since then - but that count is from before PLTR was public, so is immaterial to this discussion.\nEstimates of Palantir's float range from 1.53 billion to 1.68 billion according tofloatchecker.com. Since Palantir is a recent listing, the count is up from zero. At least $1.04 billion worth of shares were added to the float right after the listing, because that's the number of shares unloaded by insiders in the first 10 days of trading.\nFully diluted shares probably haven't increased as much as either shares outstanding or float. Companies aren't under any obligation to report \"granted but not vested\" employee stock options, and Palantir hasn't done so since its prospectus. However, Palantir's stock compensation expense has decreased since it went public, so the number is likely growing slower than it had been previously.\n\nWhat this all boils down to is that Palantir's equity is being diluted significantly no matter which share count you look at. Shares outstanding, float, it's all up. With that said, we may have seen the worst of this. As mentioned already, the amount of stock-based compensation is going down. One analyst forecast future dilution of 4% per year, which is far outpaced by Palantir's revenue growth.\nPalantir's Recent Earnings\nAs we've seen already, Palantir has been seeing some serious dilution brought on by stock-based compensation. It is what it is. The good news is that Palantir's revenue and EBITDA are growing at a rapid pace, and may ultimately grow faster than the number of shares.\nFor the most recent quarter, Palantir posted the following results:\n\nRevenue: $376 million, up 49%.\nTotal contract value: $925 million, up 175%.\nNet new customers: 20, up 13% quarter-over-quarter.\nGross profit: $90 million, up 32%.\nCash from operations (six-month): $139 million, up from a $226 million outflow.\n\nAs you can see, many of Palantir's key financial and operating metrics improved considerably in Q2. GAAP diluted EPS was still a loss at $-0.07, although adjusted EPS was positive at $0.04. If EPS were to stay at $0.04 for the next three quarters, then we'd end up with $0.16 in annualized EPS. That yields a 166 P/E ratio. The price/operating cash flow ratio is even higher at 374. Not exactly cheap.\nHowever, we need to account for Palantir's growth potential. Since going public, Palantir has managed to maintain revenue growth in the high 40% to low 50% range. If EPS could grow in line with revenue, then we'd have an ever increasing adjusted EPS figure taking the multiple lower based on today's price. Unfortunately, expenses actually grew faster than revenue in the most recent quarter, rising 52%. For the six-month period, expenses grew even more, at 57%. Now, according to analyst Michael Page, dilution is expected to run at about 4% per year for the foreseeable future. We have got revenue running well ahead of that rate, but on the other hand, there is no clear trend of operating profitability. So it's a very mixed picture we're seeing here - hence my neutral rating on the stock.\nRisks and Challenges\nAs we've seen, Palantir is a fast-growing stock with some major dilution on its hands. In my view, it's going to perform about in line with the market, or keep trading in its established range, in the near term. But there are some risks and challenges even to this fairly tepid thesis. They include:\n\nContinued growth in expenses. Palantir's expenses have been growing faster than its revenue lately. A lot of these expenses are stock compensation - hence cash flow being positive while operating earnings are negative - but they are expenses nonetheless. We expect companies to lose money when they're fresh out of their IPO but this is a company with 17 years of pre-IPO history. We'll want to see that stock compensation expense come down.\nThe stock options vs. cash pay catch-22. Palantir has so far managed to keep its operating cash flows positive by paying employees in stock options rather than heavy amounts of cash. If the company aims to get its dilution down to 4% a year, then it will probably have to start paying employees more salary. That will cause dilution to ease off but also eat into operating cash flow and related metrics like free cash flow.\nCompetition. Palantir has a pretty solid moat in its core business of providing data software to large government agencies. But it faces stiff competition when reaching out to private sector clients. The companies offering data platforms to private businesses are legion. And this is where Palantir needs to look to fuel future growth because there are only so many Department of Defense contracts to go around.\n\nThe Bottom Line\nThe bottom line on Palantir is this:\nIt's a high growth business that unfortunately is seeing its expenses grow every bit as much as its revenue. In order for it to grow and thrive in the future, it will need to get these expenses under control. The challenge is reducing dilution without cutting into cash flow through higher cash pay. If the company can get dilution down to 4% as estimated above, maybe this dilemma won't matter so much. But if it keeps running at 100% a year? We've got a problem on our hands.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":886044322,"gmtCreate":1631541286966,"gmtModify":1631890058868,"author":{"id":"3586302070197771","authorId":"3586302070197771","name":"bluesea2021","avatar":"https://static.tigerbbs.com/73eb680e3d17db63abd07c00f7afd3e0","vip":1,"crmLevel":5,"crmLevelSwitch":0,"idStr":"3586302070197771","authorIdStr":"3586302070197771"},"htmlText":"I would buy it in the price range of 20 to 23","listText":"I would buy it in the price range of 20 to 23","text":"I would buy it in the price range of 20 to 23","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":1,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/886044322","repostId":1104055488,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":880242319,"gmtCreate":1631062028231,"gmtModify":1631888868129,"author":{"id":"3553680669291881","authorId":"3553680669291881","name":"maOQiu","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":6,"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/880242319","repostId":1104055488,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"comments":[{"id":5786980,"gmtCreate":1631062033575,"gmtModify":1631888868130,"authorId":3553680669291881,"author":{"id":3553680669291881,"idStr":"3553680669291881","authorId":3553680669291881,"name":"maOQiu","avatar":"https://static.laohu8.com/default-avatar.jpg","vip":1,"crmLevel":6,"crmLevelSwitch":0,"individualDisplayBadges":[]},"repliedAuthorId":0,"objectId":880242319,"type":1,"supId":0,"prevId":0,"content":"[财迷]","text":"[财迷]","html":"[财迷]"}],"langContent":"EN"},{"id":880304284,"gmtCreate":1631017062548,"gmtModify":1631884340578,"author":{"id":"3567239827558758","authorId":"3567239827558758","name":"Jypsy","avatar":"https://static.tigerbbs.com/66e331c670eb88443b88c6bdb76224cf","vip":1,"crmLevel":3,"crmLevelSwitch":0,"idStr":"3567239827558758","authorIdStr":"3567239827558758"},"htmlText":"👍","listText":"👍","text":"👍","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":5,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/880304284","repostId":1104055488,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":880989536,"gmtCreate":1631009026925,"gmtModify":1631893619941,"author":{"id":"4087698744325360","authorId":"4087698744325360","name":"glorify","avatar":"https://static.tigerbbs.com/bb1a0d88b0029e6cb51d7065d6b143e5","vip":1,"crmLevel":2,"crmLevelSwitch":0,"idStr":"4087698744325360","authorIdStr":"4087698744325360"},"htmlText":"It is pretty solid in its core business proving Data software to large&nbsp;agencies government. Toughthere' s good sign of revenue &amp;&nbsp;profit, however, share dilution isReal. Shares buy back&nbsp; &amp; it's&nbsp;expenses need to put under&nbsp;control. Palantir is for long term&nbsp;investment . 💪👌Keep the good&nbsp;going.","listText":"It is pretty solid in its core business proving Data software to large&nbsp;agencies government. Toughthere' s good sign of revenue &amp;&nbsp;profit, however, share dilution isReal. Shares buy back&nbsp; &amp; it's&nbsp;expenses need to put under&nbsp;control. Palantir is for long term&nbsp;investment . 💪👌Keep the good&nbsp;going.","text":"It is pretty solid in its core business proving Data software to large agencies government. Toughthere' s good sign of revenue & profit, however, share dilution isReal. Shares buy back & it's expenses need to put under control. Palantir is for long term investment . 💪👌Keep the good going.","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/880989536","repostId":1104055488,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":880047082,"gmtCreate":1631003860746,"gmtModify":1632904659705,"author":{"id":"3561626499477725","authorId":"3561626499477725","name":"LEEPK","avatar":"https://static.tigerbbs.com/797bbc4f6e8194fe6be369618bc544f5","vip":1,"crmLevel":6,"crmLevelSwitch":0,"idStr":"3561626499477725","authorIdStr":"3561626499477725"},"htmlText":"Good&nbsp;","listText":"Good&nbsp;","text":"Good","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/880047082","repostId":1104055488,"repostType":2,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"},{"id":817234001,"gmtCreate":1630968228503,"gmtModify":1631888827679,"author":{"id":"3575890735190983","authorId":"3575890735190983","name":"DanVI","avatar":"https://static.tigerbbs.com/478c2cb5a178cff7532f6fa9a68068b7","vip":1,"crmLevel":4,"crmLevelSwitch":0,"idStr":"3575890735190983","authorIdStr":"3575890735190983"},"htmlText":"Hopefully they start buying back shares in future!! Pls like and comment! Thanks 🙏&nbsp;","listText":"Hopefully they start buying back shares in future!! Pls like and comment! Thanks 🙏&nbsp;","text":"Hopefully they start buying back shares in future!! Pls like and comment! Thanks 🙏","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":3,"commentSize":0,"repostSize":0,"link":"https://laohu8.com/post/817234001","repostId":1104055488,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":80,"commentSize":14,"repostSize":0,"favoriteSize":3,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":false,"deviceId":"web-server-community-laohu8-v3","version":"4.29.0","shortVersion":"4.29.0","platform":"web","vendor":"web","appName":"laohu8","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/1104055488"}