Data Adds up for Palantir Share Price

The Palantir [PLTR] share price rocketed 312% from $9.46 at the close on 1 October 2020 to $39 at the close on 27 January. The group was helped by growing economic, health and political uncertainty during the pandemic leading to higher demand from customers. This included the US Army looking for AI capabilities for military planning, the NHS for help rolling out the COVID-19 vaccine programme and retailers needing to address supply chain disruptions.

For 2020, revenues surged 47% to $1.1bn, with average revenue per customer of $7.9mn, up 41% year on year. Its operating loss, however, widened to $1.17bn from $576,444 in the same period the year before.

The loss played a part in the Palantir share price slumping to $18.37 at the close on 13 May after investors worried about the prospect of rising interest rates and inflation backed away from highly valued growth stocks. There were also concerns that post-pandemic there would be a drop off in remote working related demand, the need for COVID-19 vaccine data and a potential squeeze on enterprise and government spending.

A strong first-quarter update in which revenues, boosted by commercial demand, surged 49%, helped the Palantir share price recover to hit $27.38 at the close on 28 June. Investors also seemed to be less nervous about the prospect of higher interest rates.

The Palantir share price then dipped again to stand at $22.93 at the close on 9 August.

Dependent on government

Palantir is a high growth stock with a back history of reporting losses. Its market cap is $42.94bn, according to Yahoo Finance, far exceeding its annual revenue performance.

The company is also heavily dependent on government revenue, particularly in the US, with commercial struggling to pick up steam. In the first quarter, it revealed that government revenue came to $208.42m compared with $118.12m in the same period in 2019. Commercial revenue came in at $132.81m, up from $111.2m.

Palantir’s work with intelligence agencies and concerns over people’s private data may be a sticking point with some businesses. Its work with the NHS proved controversial, and a campaign, “No Palantir in our NHS” was formed to raise concerns about Palantir having access to NHS data.

In addition, investors are wary about Palantir’s stock-based compensation and its potentially dilutive effect on the share price. These came to $193.7m in the first quarter—almost 56% of the company's revenue.

Palantir is releasing its second-quarter earnings on 12 August.

What to expect

Palantir expects to post second-quarter revenues of $360m, up 43%. Refinitiv expects revenues to be $352m with loss of 3 cents per share, compared with 7 cents in the first quarter.

Seeking Alpha expects Palantir’s customer base to grow sequentially by 8% in the second quarter. It forecasts that government revenue will post sequential revenue growth of 10% to $229m as Palantir helps in the fight against the new COVID-19 Delta variant and others.

It forecasts that commercial revenue will rise 2% in Q2 to $135m. It will be helped by new initiatives such as offering a part of its platform for free to big firms, growing its sales team and moving to a new subscription-based revenue model for start-ups.

“The bigger investor debate revolves around the company's ability to scale distribution and fit their technology into a broader set of customers, in particular commercial," said Morgan Stanley analyst Keith Weiss in an Investor’s Business Daily report.

RBC Capital Markets analyst Matthew Hedberg added that Palantir's artificial intelligence services would help enterprise growth.

"The company continues to develop its offerings, with Edge AI generating pipeline in the company's large government business, and we see that as likely to carry over to the commercial market as well," he said.

Market Screener has a hold rating on the Palantir stock and a target price of $21.79.

Expectation match

In the first quarter, Palantir reported earnings per adjusted share of 4 cents, meeting expectations, with revenues of $341.23m outpacing $332.2m forecasts.

“We only have a handful of Fortune 500 customers and less than one-tenth of a percent of annual defence spending,” said Shyam Sankar, chief operating officer. “We have widened and are continuing to widen our capability to distribute our product. We see strength in forward-looking indicators and customer interest.”

The main ETF that may be impacted by fluctuations in the Palantir share price is the ARK Innovation ETF, where it holds a 2.10% weighting as of 9 August.