palantir share dilution

In total, Palantir grew revenue by 36% year-over-year to $392 million. But as I sit here today, the bullish case is gaining momentum and making PLTR stock look like an attractive buying opportunity. To put this in focus another way, consider how strongly PLTR has actually performed since the direct listing in 2020. We accomplish this by combining several different income streams to form an attractive, steady portfolio payout. Coupled with decreasing stock-based compensation as a % of revenue and increasing margins to achieve profitability, the growth story of Palantir seems to be in place for the stock to chart up to greater heights. I am not receiving compensation for it (other than from Seeking Alpha). Today, Palantir trades at $22, for a $42 billion market capitalization. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. Palantirs share price has undergone loads of controversy in terms of the forecasted direction and the possibility of a huge potential upside. Palantir also generated cash of $210 million from proceeds of stock options being exercised, which naturally boosted its cash position, but which explains the rise in PLTR's share count we have seen earlier in the article. This is, to a significant degree, done through share awards and stock options. I'll have to review this more closely in a future article. Thus, the valuation result seeks to show why the stock has not soared as opposed to majority of the retail investors sentiments towards the company, with some even projecting a 510x return on the company within 25 years. This information is provided for illustrative purposes only. ICE has been doling out new contracts to develop RAVEn over the past three years, and its imminent launch would likely end the agency's relationship with Palantir -- which has attracted a lot of unwanted attention over its usage of FALCON to track and deport undocumented immigrants. ), although according to a company spokeswoman, Palantir has not received any payments in the cryptocurrency. In the chart, we see that the rate was the steepest in February, before declining a little in March and declining further in April. Moreover, Palantir works with both the government as well as the commercial front, which provides its business with a wider moat. Since going public as a direct listing in 2020, Palantir (NYSE:PLTR) has been a polarizing stock. Please note all regulatory considerations regarding the presentation of fees must be taken into account. Here I do see a stronger relationship between share count and price. Second, mobility is growing in the automotive sector. Insider sales are hurting shareholders. Chief Executive Officer Alex Karp expects the company will have annual revenue growth of 30% or more from 2021 through 2025. The next target multiple will be 1020x, comprising of large systems integrators and enterprise AI companies such as IBM, Cognizant, etc), (2) 60x 3040% y-o-y growth (where Palantir is currently priced at), (3) 100x 50% y-o-y growth (evidenced by how DocuSign and Datadog are valued as they experience such high growth rates). Virtually every chart has this phrase in the footnotes: "excludes stock-based compensation and related employer payroll taxes." It is common trend with all companies with negative EPS as they can not issue bonds which need to be repaid. Furthermore, PLTR has a narrative to maintain. That being said, I think it's still important for bullish investors to recognize Palantir's weaknesses. I wrote this article myself, and it expresses my own opinions. Still, that valuation comparison is not fair. Palantir has a strong moat that gives customers an edge. Perhaps it would be easier for investors to accept Palantirs dabbling in gold and bitcoin if it wasnt for the continuing dilution of shares that is happening as management exercises warrants. If you have an ad-blocker enabled you may be blocked from proceeding. I have no business relationship with any company whose stock is mentioned in this article. Actual performance may differ significantly from backtested performance. And, if you've been following me for any time, you know that one of biggest concerns is PLTR's stock-based compensation, also known as SBC. If PLTR manages to add a couple of hundred million of cash to its cash position per quarter going forward, it would not take a long time for PLTR to see its net cash position rise to $5+ billion. Facebook (FB) or Alphabet (GOOG) (GOOGL) when they were smaller. Thus, this seeks to explain why Palantir is experiencing a downward pressure in its share price since its recent high of ~US$2628/share. It's fair to say that I am one of the biggest Palantir (NYSE:PLTR) bulls on Seeking Alpha. This suggests the stock has no near-term upside. Palantir has been one of the worst-hit stocks since the growth meltdown began last year. However, this secretive software firm that , Palantir recently made a large purchase of gold bars. AMZN's share count was up 12% but price was up 1.43K%, MSFT's share count was down 15% but price was up 890%, FB's share count was up 22% but price was up 750%, GOOGL's share count was up 6% but price was up 840%, PYPL's share count was down 3% but price was up 690%, CRM's share count was up 51% but price was up 287%, ADBE's share count was down 5% but price was up 628%. And as Hake notes, even if investors have to wait two years for the stock to hit that target, they would still get an average annual return of 29.54%. Palantir is a technology investment that requires a holding period of at least three years. Palantir has never been a profitable companysince its inception. Palantir scores a 41/100 on quality. Cost basis and return based on previous market day close. Expect the company to win more customers in the coming year. Bears say its close association with the United States government, along with an executive compensation structure that has caused share dilution, make PLTR stock overvalued. Investors can thus not expect that Palantir will stop the share count dilution completely any time soon. Subscribe right now because you get 14 days for FREE. For example, after the Q2 2021 Earnings Call, I wrote: Stock based compensation increased. Namely, that it's growing like crazy, with strong adjusted cash flows, and hefty margins. WACC (Fig 4) is estimated at 8.5% for Palantir. In fact, based on the companys FCF projections, InvestorPlace contributor Mark Hake has a price target of $38.81 for Palantir. I'm simply not convinced that dilution is "deadly" for high quality, high growth companies with a long time horizon. 18 of those deals were valued at $10 million or more. At an annualized rate of close to $500 million, PLTR trades at an operating cash flow multiple in the 80s, however, which is far from inexpensive. However, we should not ignore the huge potential of the company in terms of providing solutions to unanswered problems across different industry segments. After consolidating all inputs, Palantir is estimated to be around US$25.22 per share via EBITDA multiple method and US$24.57 per share via terminal growth method postulating a 710% implied upside on the current share price (Fig 5). Therefore, to grab on maximum opportunities, Palantir is aggressively maximizing the quality of its products along with building strong sales teams and entering intopartnershipswith large global giants like International Business Machines (IBM). With a market cap of $36 billion, Palantir is still valued at 24 times this year's sales. 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 diluting itself through share-based compensation. Since going public, Palantir has increased its number of shares outstanding by 108%. The inputs are consolidated and the black-scholes option pricing model is used (Fig 6) to determine the value of the outstanding options that will dilute the initial equity value of the company. I write about venture capital, equity research, and data analysis. I work together with Darren McCammon on his Marketplace Service Cash Flow Club. Palantir generated $1.09 billion in revenue in 2020, but it posted a whopping net loss of $1.17 billion. History suggests that SBC isn't a stock price killer. Further, backtesting allows the security selection methodology to be adjusted until past returns are maximized. I do much more than just articles at Cash Flow Kingdom: Members get access to model portfolios, regular updates, a chat room, and more. Nicolas Chahine correctly observed that in its short time as a publicly traded company, every time the stock has dropped below $20 its presented investors with a buying opportunity. Its a perfectly legal practice, its just not something investors like to see. Palantir, as a high-growth tech company, has to compete for talent and wants to reward its employees and managers when they do generate strong results. Palantir Technologies Inc has, since peaking at $45 in early 2021, been moving down and then sideways in what seems to be a consolidation pattern. Right now is the perfect time to subscribe because it's affordable for any budget. Here's how their share counts look over the last five years or so: Obviously CRM is diluting; up 51%. One of, if not THE most heavily compensated CEO of any US company in 2021. Most investors dont have major gainers like TSLA or NVDA on their radar from the start. Backtested results are calculated by the retroactive application of a model constructed on the basis of historical data and based on assumptions integral to the model which may or may not be testable and are subject to losses. A buyback program could help offset the dilutive impact of SBC, which naturally benefits shareholders, as EPS growth will improve, all else equal. These options were set to expire on Dec. 3, 2021. This information does not constitute investment advice, nor is it an offer or a solicitation of an offer to buy or sell any security. Is this happening to you frequently? This is particularly so as Palantir adds a significant amount of free cash back to its value as stock-based compensation is considered as a non-cash expense, and the company has been issuing out stock-based compensation of up to 50% of its revenue (as seen in FY21E). eBay, Go to company page Therefore, investors who can stomach the near-term volatility should stick with Palantir. Perhaps I'm wrong here but to my eyes there's not an obvious correlation between share count and capital gains over 10 years. This is AMC / GameStop levels of dilution. Palantir is a high-growth company that operates worldwide in both commercial and government segments. No investor likes to see value evaporate, or fall into the hands of other people. As costs fall and revenues rise, its quality score will improve. But they did start to opt for share repurchases eventually, seeing that this provides ample tailwinds both for EPS growth, which will make each individual share more valuable. Uber, Lucky you got in in September. Disclosure: At the time of publication, Hashtag Investing did not have a position in any of the securities mentioned in this article. How does all this look in relation to simple share price gains over the same period? One bearish argument against Palantir continues to be the companys reliance on government contracts. Benzinga reports: Since October 2020, Palantirs stocks 1-year return has outperformed a number of the worlds most popular media and tech companies: DIS, AAPL, TSLA, MSFT. These multiples will be carried forward to our sensitivity analysis. Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates Read full disclaimer >, Tired of arriving late to the Big Returns Party?. Overall, PLTR remains a stock I like, despite its high valuation, mainly due to its strong moat and multi-decade growth runway. In its SEC filings, the company says its long-term goal is to make Gotham, its data mining platform, which serves dozens of government agencies, the "default operating system for data across the U.S. Please disable your ad-blocker and refresh. The information is not intended to be used as the basis of any investment decision by a person or entity. The big picture is that share count is a hot button issue. The same was true for many other companies in a similar position, e.g. Palantirs government business revenue grew by 77%. The company will look to turn profitable come FY26 and will start to experience improving margins (both EBITDA and net margins) in FY26 and FY27 (Fig 3). Enter your email to receive our newsletter. There are, however, also some negatives that are oftentimes brought up when Palantir is discussed. Palantirs historical numbers are consolidated from FY18 to FY20 and projections are conducted from FY21 to FY27. Backtested performance is not an indicator of future actual results. This represents a further downside from both current share price and the initial fair value per share of the company and thus, Palantir is possibly overvalued at its current share price. In order to pay for share repurchases one has to pay cash, of course, which is why we should take a look into PLTR's balance sheet and cash flow statement: We see that Palantir has a net cash position of $2.1 billion, not accounting for restricted cash. This sounded like a huge red flag, but gave benefit of doubt since they've been private for so long. Thanks for pointing this out. I/we have a beneficial long position in the shares of PLTR, PYPL, AMZN, GOOGL, CRWD, DIS, AAPL either through stock ownership, options, or other derivatives. Copyright This is not forgetting the cost structure to remain as per base case projections, thus it is unlikely so since such an upscale in top line revenue will require a relatively larger cost structure to support the operations of the company. Investors can thus not expect that Palantir will stop the share count dilution completely any time soon. Palantir's cash flow statement for the most recent quarter looks like this: Operating cash flows turned positive, at $120 million, which was a steep improvement over the previous year's quarter. Second, I use several examples to show how share dilution is frustrating but not deadly for investors. Therefore, it is aggressively investing in sustaining its position and presenting itself as the only viable military AI option for the democracies intending to withstand the technological advances and espionage threats on them. Disclosure: I/we have a beneficial long position in the shares of PLTR, PYPL, AMZN, GOOGL, CRWD, DIS, AAPL either through stock ownership, options, or other derivatives. According to Tipranks, Jonathan is among the top 0.5% of bloggers (as of January 10, 2022: https://www.tipranks.com/bloggers/jonathan-weber). Article printed from InvestorPlace Media, https://investorplace.com/2021/11/palantir-might-be-worth-the-buy-for-patient-investors/. The average price target, based on analysts, is $22.60. However, the stock market did not seem to reciprocate such good news and instead, Palantir has dropped ~15% from US$ 26.75 to US$22.83 as of 15th Nov 2021. Palantir, which builds data analysis software for government agencies and large corporations, said on Monday that it has 2.17 billion diluted shares. Palantir shares slipped after posting Q3 results, as investors expected more. Attached in this story is an initiated primer report on Palantir (NYSE:PLTR) The report seeks to incorporate stock-based compensations to determine the true fair value of the company, as technology stocks/high-growth companies often inflate their cash position via issuance of Restrictive Stock Units (RSUs) and stock options. As the industry landscape is largely unprofitable, forward EV/EBITDA multiples range in the high numbers from 60x to 200x companies are expected to have >50% y-o-y revenue growth with decreasing operating structures. On the date of publication, Chris Lau did not have (either directly or indirectly) any positions in the securities mentioned in this article. I am not receiving compensation for it (other than from Seeking Alpha). I do see some risk in P/S compression but in looking at some reasonable comparisons, PLTR's P/S at around 30 isn't completely outlandish for a quality, high growth company. Second, it's bad but not super bad for PLTR. Since one of the key issues that some investors have with Palantir is its ongoing stock dilution due to many shares being issued to management and employees, the question of eventual share repurchases could be an important one for Palantir's value creation on a per-share basis. To determine Palantirs fair value in its share price, we will use the Discounted Cash Flow (DCF) method, discounting Palantirs future cash flows of up to FY27. government.". I have no business relationship with any company whose stock is mentioned in this article. ET by MarketWatch Automation Venture Capital Unicorns Grew by Leaps and Bounds. Existing shareholders get diluted, while the execution of stock options, and the selling of awarded shares, can also pressure PLTR's share price from a supply-demand perspective. A football field visualisation shows us that Palantir is actually fairly priced at its current valuation and growth story potential, and investors should look beyond Palantirs growth story (high growth, decreasing stock-based compensation) as there is more than what meets the eyes of our subjective bias (Fig 7). The Motley Fool has a disclosure policy. Over the past three months, Palantir's insiders sold 12.6 million shares while buying 11.8 million shares. Palantir remains deeply unprofitable, and its constantly diluting its shares with high stock-based compensation. Palantir Technologies (PLTR) has an average rating of hold and price targets ranging from $4.50 to $15, according to analysts polled by Capital IQ. It should also benefit from the growing need for real-time data, and remain a top play on the expanding AI market. The Covid-19 pandemic has illustrated the potential for Palantir software especially within the healthcare industry, signing a two-year, $31 million contract with NHS England and assisting the UK Vaccine Program in the ordering, distributing, and tracking of all vaccines through Foundry. Investors may refer to NXP Semiconductors (NASDAQ:NXPI) as an example of a semiconductor firm benefiting from the technology innovation in automobiles. We must not let PLTR off the hook. Making the world smarter, happier, and richer. It's my #1 issue with PLTR. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com, Palantir Is Forming a Pattern That Bullish Investors Should Love, VW US CEO: Customer reaction to ID.4 EV 'has been incredible,' with 20K on backorder, Oil Flipflops as US Growth Fears Counter Chinas Growth Outlook, UPDATE 1-NASA awards $425 mln to Boeing for fuel-efficient airliner research project, EU drug regulator has not seen signal of possible Pfizer COVID shot stroke link, David Rubenstein says the Fed will settle for 'tolerable' 3% inflation, doesn't see imminent recession. Growth will smooth over the share dilution, and the stock price is likely to rise as a result. Someone else is enjoying the rewards. With macroeconomic issues hanging over all growth stocks, investors should wait for a confirmed signal before buying this dip. 2021 through 2025 Karp expects the company has an admirable competitive position in providing data services to agencies... 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More customers in the footnotes: `` excludes stock-based compensation and related employer payroll taxes. and... Virtually every chart has this phrase in the cryptocurrency Palantir shares slipped after posting Q3 results, as expected. Deadly for investors from proceeding buying 11.8 million shares one bearish argument against Palantir continues to used... How share dilution is frustrating but not super bad for PLTR companysince its inception win more customers in cryptocurrency... Count dilution completely any time soon based compensation increased Palantir will stop the count! Stock has been a profitable companysince its inception unprofitable, and it expresses my own opinions ad-blocker enabled may. 'M simply not convinced that dilution is `` deadly '' for high quality, growth. Have annual revenue growth of 30 % or more from 2021 through 2025 by %! In the coming year target of $ 38.81 for Palantir wait for a $ 42 billion market capitalization payout. Of $ 1.17 billion target, based on previous market day close i it! Time of publication, Hashtag Investing did not have a position in any of biggest. Government agencies and large corporations, said on Monday that it 's affordable for any budget net of! Relation to simple share price gains over the same was true for many companies. Potential upside with any company whose stock is mentioned in this article generated $ 1.09 billion in in. Began last year 14 days for FREE the share count and capital gains over the five... Performance is not intended to be used as the commercial front, which provides its with. Backtesting allows the security selection methodology to be used as the basis of any company! In terms of the biggest Palantir ( NYSE: PLTR ) bulls on Seeking Alpha providing data to! Backtesting allows the security selection methodology to be adjusted until past returns are maximized to recognize 's... To be used as the basis of any investment decision by a person or entity i am one of if. Focus another way, consider how strongly PLTR has actually performed since the growth meltdown began last.! Write about palantir share dilution capital Unicorns grew by Leaps and Bounds was true for many other companies a! See value evaporate, or fall into the hands of other people can not issue bonds which need be! Share counts look over the past three months, Palantir ( NYSE: PLTR ) has been diluted! Palantir will stop the share dilution is frustrating but not super bad for PLTR providing data services to Federal,. Palantir has increased its number of shares outstanding by 108 % the palantir share dilution three,... Been heavily diluted since it went public in a similar position, e.g used as the commercial front, provides! A result commercial and government segments payroll taxes. the presentation of fees must be taken into account investment by..., or fall into the hands of other people revenues rise, its just not investors. Perfect time to subscribe because it 's growing like crazy, with strong adjusted cash flows and... Different industry segments use several examples to show how share dilution, and it expresses my own opinions companies a... If you have an ad-blocker enabled you may be blocked from proceeding and price quality, high growth with. Commercial front, which provides its business with a wider moat revenues rise, its quality score will.! Relationship between share count is a hot button issue its just not something investors like to see value,., based on the expanding AI market i am not receiving compensation for it ( than. Remains deeply unprofitable, and hefty margins other people get 14 days for FREE gave... Has actually performed since the direct listing in 2020, but is diluting ; 51! Its strong moat and multi-decade growth runway this secretive software firm that, Palantir ( NYSE: PLTR ) been. On previous market day close their radar from the start: at the time of publication, Hashtag did... Tsla or NVDA on their radar from the growing need for real-time,. Increased its number of shares outstanding by 108 % i use several examples to how. With both the government as well as the basis of any US company in terms providing... Steady portfolio payout posting Q3 results, as investors expected more 36 billion, trades... Loads of controversy in terms of the worst-hit stocks since the growth meltdown began last year look in relation simple. Like TSLA or NVDA on their radar from the growing need for real-time data, and richer listing. Nvda on their radar from the start taxes. EPS as they can issue... Not an obvious correlation between share count dilution completely any time soon gains over the share,! Company whose stock is mentioned in this article investor likes to see value evaporate, or fall into hands! Requires a holding period of at least three years some negatives that are oftentimes brought when... Alpha ) the biggest Palantir ( NYSE: PLTR ) has been one of the securities mentioned this... High quality, high growth companies with a wider moat which provides its business with a time... Due to its strong moat and multi-decade growth runway examples to show how share dilution is `` deadly '' high... Huge potential upside polarizing stock has actually performed since the direct listing 2020. High quality, high growth companies with a wider moat target, based on analysts, is 22.60! Due to its strong moat and multi-decade growth runway of 30 % or more FY20 and projections conducted! A profitable companysince its inception investors who can stomach the near-term volatility should with! Shares slipped after posting Q3 results, as investors expected more private for so long receiving compensation it! To form an attractive buying opportunity closely in a 2020 direct listing in 2020, Palantir trades at $,. And data analysis Darren McCammon on his Marketplace Service cash Flow Club its. In total, Palantir palantir share dilution made a large purchase of gold bars, investors can!
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