Palantir Stock Is Loved by Retail Investors and Avoided on Wall Street
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Palantir Technologies
is one of the worldâs quirkiest tech companies, and last week the story got weirder than ever. But beneath the surface, thereâs an oddly compelling case for the business and the stock.
Palantir (ticker: PLTR) provides data analytics software to both commercial and government clients. The 18-year-old company has two primary platformsâGotham, for government applications, and Foundry, for commercial customers. Palantir has a long history of serving U.S. military and intelligence agencies, but lately itâs been building out its sales team to bulk up its commercial business. That plan seems to be getting traction.
Palantir went public in a direct listing last September, with the stock opening at $10. Itâs since taken shareholders on a wild ride, trading as high as $45 earlier this year. Itâs now around $25, still up 150% from listing day.
In its recently reported June quarter, Palantir posted revenue of $376 million, up 49% from the year-earlier level. The company got a big boost from its U.S. commercial business, which grew 90%. Palantir sees September quarter revenue inching up to $385 million, and it continues to forecast annual top-line growth of 30%-plus through 2025.
But the core story gets lost in the noiseâPalantir seems to thrive on controversy. Almost everything it does is outside the box. Before last yearâs stock listing, Palantir quietly moved its headquarters to Denver from Palo Alto. The reasoning boils down to politics.
âWhen we started the company in 2004, the idea was to bring world-class software to our intelligence and military communities,â Palantir CEO Alex Karp told me in a June interview. âNumerous companies in Silicon Valley have refused either overtly, tacitly, or by dragging their feet, to work with the U.S. government. ⊠I believe in general thereâs a choice to be made in the world, and America has serious, rigorous, intelligent, and sometimes ruthless adversaries.â
Palantir has also been doing unusual things with the $2.4 billion in cash on its balance sheet. The company is aggressively investing in PIPEs, or private investments in public equities, which are used in almost every SPAC merger to increase the capital raised. Palantir has committed $310 million across more than a dozen SPACs, or special purpose acquisition companies, according to its latest SEC filing. Itâs completed $33 million of equity investments across three other companies.
The most recent tranche includes $20 million for Fast Radius, which offers a âcloud manufacturing platform;â $15 million for Tritium, a developer of electric vehicle chargers; $15 million for AdTheorent, which sells advertising software driven by machine learning; and $10 million for FinAccel, an Asian financial-services company.
All the targets have signed up to be Palantir customers. As of June 30, Palantir said it had commercial contracts with its SPAC portfolio companies with a potential value of $428 million; the revenue contribution in the latest quarter was just $3 million, or less than 1% of the total.
SPACs are a highly speculative place for a public company to be parking its cash. But Iâd argue that Palantirâs decision to provide capital to new customers isnât so different from offering vendor debt financing for hardware purchasesâas
IBM
(IBM) and HP Enterprise (HPE) doâor from running robust venture capital programs, as do
Intel
(INTC) and
Salesforce.com
(CRM).
Even so, it makes some analysts squeamish. âWhile we donât oppose thinking outside the box, we think the strategy may have been taken too far, particularly with software contracts that appear to be negotiated alongside an investment by Palantir in the same customer,â Citiâs Tyler Radke wrote in a recent research note.
The outside-the-box strategy goes beyond SPACs. This past week, Palantir disclosed that it had purchased $50.7 million worth of 100-ounce gold barsâa pretty strange move, even for Palantir. I ran a text search in the SECâs database looking for references to gold bars, and found only references to other gold companies. The move makes
Teslaâs
(TSLA) Bitcoin purchases seem mundane.
The fact that Palantir decided to buy physical gold, rather than, say, the
SPDR Gold Shares
ETF (GLD), makes it odder still. Palatnir ends up looking like the corporate equivalent of a doomsday prepper. I tried to follow-up with Karp to ask about the sudden interest in gold, but Palantir declined to make him available.
One analyst who follows the company told me that the SPAC program and the foray into gold make Palantir a hard sell for institutional investors. You can see that in the shareholder base. Institutions hold only 25% of Palantir sharesâcompared with
Oracleâs
(ORCL) 46%,
Snowflakeâs
(SNOW) 58%, and
Microsoftâs
(MSFT) 71%.
But the same analyst is still bullish on Palantir and says it offers âa very interesting set of solutions to buyers that require scale and sophistication.â
Palantir has a fanatical following among individual investors, and the company is playing to its fans. During its June-quarter earnings call, Palantir took nine questions from retail investors and just four from analysts.
On traditional metrics, Palantir isnât cheap. The stock trades for 25 times estimated 2022 sales. But strip away the craziness, and Palantir looks like the single best bet on the future of complex data analytics. There arenât many other ways for investors to play the opportunityâand the world isnât getting any simpler or less dangerous.
Write to Eric J. Savitz at eric.savitz@barrons.com