Palantirin (NYSE: PLTR) the shares plummeted recently after the data analytics company released mixed numbers in the fourth quarter. Its revenue grew 40% year over year to $ 322.1 million, exceeding estimates by $ 21 million. But its net loss decreased only slightly from $ 159.3 million to $ 148.3 million, or $ 0.08 per share, which did not reach the projected earnings of $ 0.02 per share. Its forecast of “more than 30%” revenue growth in 2021 met expectations for growth of 31%, but investors seemed to expect even greater numbers.
These two red flags – along with Palantir’s high valuation and his next lock-up expiration – probably triggered the liquidation after the meteoric rise in stocks over the past four months. Investors who have lost those gains, however, should consider buying this drop for five simple reasons.
Image source: Getty Images.
1. Beware of share-based compensation
Like many high-growth technology companies, Palantir subsidizes its employees’ salaries with stock bonuses to conserve their money. As a result, his stock-based compensation more than tripled year after year, to $ 241.8 million during the fourth quarter and consumed 75% of his revenue.
Stock-based compensation generally remains high after a company’s public debut, even if it’s a direct listing like Palantir’s, rather than a traditional IPO, because insiders still want to cash out their options. But that rate of pay generally decreases significantly as the company matures.
If we remove these expenses, the associated payroll taxes and direct listing costs for both quarters, Palantir would have recorded an operating profit of $ 104.1 million, compared to a loss of $ 70.1 million a year behind. In other words, Palantir’s loss of profits was not as bad as it looked, and its profitability could improve as it controlled its initial costs.
2. Increasing margins
Palantir’s adjusted gross margin, contribution margin (which excludes sales and marketing costs and share-based compensation) and operating margin increased in the fourth quarter and the full year.
|
Time course |
Fourth quarter of 2019 |
Fourth quarter of 2020 |
FY 2019 |
FY 2020 |
|---|---|---|---|---|
|
Gross Margin |
72% |
84% |
71% |
81% |
|
Contribution margin |
33% |
62% |
21% |
54% |
|
Operating margin |
(31%) |
32% |
(45%) |
17% |
Non-GAAP. Data source: Palantir Q4 presentation.
These growing numbers indicate that Palantir still has a lot of pricing power and a viable way to generate stable long-term profits.
3. Increase in revenue per customer
In the fourth quarter, Palantir signed 21 contracts worth $ 5 million or more, including 12 contracts worth $ 10 million or more. His main victories included business with Rio Tinto, PG&E, BP, the US Army, the US Air Force, the FDA and the NHS. It also secured a large contract with IBM in the current quarter.
Palantir’s average revenue per customer increased 41% to $ 7.9 million for the full year. Average revenue for its top 20 customers also increased 34% to $ 33.2 million. This expansion indicates that Palantir’s “acquire, expand and scale” model – in which it guarantees a customer a service to cross-sell additional ones in the long run – is paying off.
For example, the US Army, which already uses the Palantir government-oriented Gotham platform to plan missions, signed a new AI contract, renewed an analytics partnership, and signed a new contract to modernize its ground stations with Palantir only. last year.
The FDA and other agencies are also strengthening their ties to Palantir, which is likely to help it achieve its long-term goal of providing the “standard operating system for data across the U.S. government”.
4. Taking down two casualty arguments
For the full year, Palantir’s government revenue increased 77%, to $ 610 million, and accounted for 56% of its revenue. This growth runs counter to the downside notion that its government businesses are running out of room to grow.
Meanwhile, Palantir’s commercial revenue, which comes mainly from its Foundry corporate platform, grew by 22% to $ 482 million. Within that total, its commercial revenue in the United States more than doubled. This growth runs counter to the pessimistic claim that Palantir will struggle to expand its commercial businesses and reduce its dependence on government contracts.
Palantir still faces indirect competition from other data processing companies, such as Alteryx (NYSE: AYX) and Sales force (NYSE: CRM), but Palantir’s government-hardened reputation and aggressive tools for extracting data from different sources are undoubtedly giving it a competitive advantage.
5. It got a little cheaper
At $ 28 per share, Palantir is valued at about $ 52.3 billion, or 28 times next year’s sales. This is still a high price / sales ratio for a company that intends to generate around 30% sales growth next year.
But Palantir may also be misleading his guidance. Last September, it forecast sales growth of 42% for 2020, but actually exceeded that estimate by five percentage points. If you increase your forecast for the entire year in the coming quarters, your inventory may be even cheaper than sales.
Palantir won’t be considered a bargain anytime soon, but it appears to have cooled off after reaching its $ 45 fueled peak at the end of January. Investors are expected to expect another potential decline with the end of the blocking period, but this fall could be a great opportunity for investors who missed Palantir’s initial recovery.