Palantir Technologies Inc

Palantir Technologies Inc (NYSE: PLTR) creates software that enables businesses to integrate their data, judgments, and procedures on a big scale. Commercial and Government are the two segments in which the business operates. Customers in non-government industries are served by the Commercial segment. Customers in the Government segment include both federal and non-federal government agencies in the United States.

Latest News

• USD 90 million, 5- year HHS contract under Blanket Purchase Agreement: On 4 May 2022, Palantir Technologies announced a 5-year contract worth USD 90 million has been selected by the Department of Health and Human Services (HHS). The Palantir platform will be available to HHS officials throughout the department's many agencies and missions. Palantir's built-in data protection features, innovative technologies, and uniform security framework were found to be well-suited to meet essential technology demands throughout HHS.
• Announcement of date for the first quarter of 2022: Palantir Technologies Inc. announced on April 19, 2022, that its first-quarter results for the period ending March 31, 2022, will be released on Monday, May 9, 2022, prior to the opening of U.S. markets, with a webcast by Palantir management to discuss the results later that day.

Financial Highlights:  (FY21)

• Strong top-line financial results: Palantir generated USD1.5 billion in revenue in FY21, with 58 percent of that coming from government customers and 42 percent coming from commercial customers. This revenue of USD 1.5 billion surged by 41% year over year. The company's average revenue per client for the trailing twelve months ended December 31, 2021, was USD6.5 million, down from USD7.9 million for the same period in 2020, demonstrating Palantir's sustained acceleration in customer acquisition.
• Continuation of net loss: For the year 2021, Palantir reported a net loss of USD520.37 million which includes USD 778.21 million from stock-based compensation expenses. FY21 net loss was much lesser than the year before of USD1.16 billion.
• Strong balance sheet and cash position: Total cash and cash equivalents as of 31^st December 2021 were USD2.36 billion which was greater than the year before the balance of USD2.12 billion.
  

Key Risks

• Key Customers risk: Palantir has only 237 customers currently while each customer on an average contributes around USD6.5 million to the revenue. Therefore, with only a few customers there is always key customer risk as any customer leaving can have a big impact on the financials.
• Negative profitability risk: The current revenue rate for the company is around 41% for the last YoY and still the company is a net loss-making company. It will be very hard for the company to sustain such a high revenue growth rate and converting revenues into net profits will be a big risk that Palantir currently faces.

Outlook

Palantir expects Q1 2022 revenue to be around USD443 million with adjusted operating margins of around 23%. Till December 2022, Palantir expects these adjusted operating margins to increase to 27% for the full year. Furthermore, Palantir expects its revenue growth to remain more than 30% till 2025 as per its long-term guidance policy.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Analysis by Kalkine Group

Stock Recommendation

PLTR's stock price has fallen 61.08% in the past six months and is currently leaning towards the lower end of its 52-week range of USD 9.74 to USD 29.29. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD13.48.

Considering the correction in the stock price, strong production results for last year, solid topline performance, positive outlook, and Q1 expectations, associated risks, and current valuation. We recommend a "Speculative Buy" rating on the stock at the current price of USD 10.20, down 3.60% as of May 4, 2022, at 09:00 AM PDT.

One-year technical chart as of 4^th May 2022 at 09:00 AM PDT. Source: REFINITIV. Analysis by Kalkine group

Technical Analysis Summary

* Current price as of May 04, 2022, at 09:00 AM PDT.

Technical Indicators Defined: - 

Support: A level where-in the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices. 

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decisions should be made depending on the investors' appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting the stock if the Target Price mentioned as per the valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.