The above chart shows that revenue per share is virtually flat, wiping out all of that revenue growth on a per-share basis. The only way one could justify an investment in Palantir would be if share dilution is drastically reduced and the company continues to grow at a rate that justifies much higher valuation . Similar actions can be found by the other executives due to option expiry, but none of it was as drastic as Karps. While professional services can be a high-margin revenue stream, there is the risk that they may not be as scalable as software licensing because they rely on the availability of highly skilled professionals. The biggest insider seller has been Alex Karp, the CEO of Palantir, and he has sold near 30 million shares this year and sold a few million in 2020. It had amounted to $1.27B worth of compensation in late 2020, which had diluted its existing shareholders by easily 3 . That balance between sellers and buyers isn't too jarring, but Palantir's stock has also lost about a third of its value over the past three months, and is trading near its 52-week low. In total, he has sold about 700,000 shares and holds nearly 2mm shares; prior to direct listing he held 2.667mm Class B shares (presumably at an extremely low cost basis from 2005-2010, see page 213 of the S-1) and received 148,000 shares upon direct listing. The decrease was due to sizable customer acquisition with rapid YoY growth of 79% but with smaller contract sizes. As of this writing, PLTR stock was sitting at about $26.6, down 32% from that elevated price. Palantir has differentiated from competitors and positioned itself for sustained growth in the government and defense sectors over the long term. Lets look at Karps as an example: Figure 1: Karps Form 4 filed on 8/24/21, Table II: Explanation of Derivative Securities Beneficially Owned. Looking forward, to develop a reasonable expectation for SBC's trend, the Restricted-Stock-Units (RSU) provides the unrecorded SBC element. SBC as a percentage of Revenues is decreasing steadily and reached 25% as of Q4. Join Over Half a Million Premium Members And Get More In-Depth Stock Guidance and Research, Motley Fool Issues Rare All In Buy Alert, could play an essential role in how government and businesses operate, Copyright, Trademark and Patent Information. The big dawgs will rule the ai landscape imo. Palantir is currently trading at $17, implying a 70% drop. I am the founder ofYiazou Capital Research, a stock-market research platformdesigned to elevate, due diligence process through in-depth analysis of businesses.. I/we have a beneficial long position in the shares of PLTR either through stock ownership, options, or other derivatives. Analysts Disclosure: I/we have a beneficial long position in the shares of PLTR either through stock ownership, options, or other derivatives. and our I'm also clearly long on Palantir. Scan this QR code to download the app now. Furthermore, we see that significant post-IPO, like share dilution . Karp will likely have two more Form 4s drop by December 3rd and he will have finally exhausted all of his options expiring by that date. Yet, Com's growth slowed down from a 24% QoQ increase to 14%, but the overall trend is still favorable. Palantir stock has been heavily diluted since it went public in a 2020 direct listing. For example, Palantir works with government agencies, including intelligence and defense agencies. This wouldn't be a huge deal if Palantir's growth were accelerating. I believe execution risk remains to be more concerning for Palantir in comparison to the topics addressed in this post, but I think the more clear picture you have as an investor, the better decision you can make, which is why I continue to cover this aspect and share my thoughts. To that effect, the rapidly increasing demand for data analytics services and solutions worldwide will benefit Palantir's financial performance over the long term by expanding its TAM. However, PLTR is not for everyone due to its high uncertainty, relevant risks, and stock volatility. If you have an ad-blocker enabled you may be blocked from proceeding. This remains relevant since the company generally recognizes SBC expenses on a straight-line basis. Palantir is a great stock no matter what! From the 2021 10-K, Page 129, the company granted zero options in 2021 (and they also granted almost no options in 2020 aside from the 2020 Executive Equity Incentive Plan [the 2020 10-K will not reflect this accurately since the company had to account for the canceling and reissuing of a huge amount of options granted under the 2010 Plan, but that is not so relevant]) while also granting 28.1mm RSUs at an average fair value of 24.08, unfortunately, due to the companys stock price being considerably higher than it is now. Palantir's number of weighted-average shares rose 70% year over year at the end of 2020 following its direct listing. Despite these weaknesses, I remain bullish on Palantirs future. In 2020, Palantir's top 20 clients contributed about $33.2 million of its annual revenue, up 34% year-over . Join Over Half a Million Premium Members And Get More In-Depth Stock Guidance and Research, Motley Fool Issues Rare All In Buy Alert, Copyright, Trademark and Patent Information. This collaboration highlights Palantir's ability to use data analysis and software expertise to support the defense industry. The price/operating cash flow ratio is even higher at 374. Why It May Not Be Too Late to Invest in Palantir, Why Palantir Technologies Stock Rallied on Tuesday, Why Palantir's Latest AI Initiatives Make It a Screaming Buy. Palantir (NYSE:PLTR) stock has been trading in a pretty narrow range lately. Palantir's Apollo platform will enhance the efficiency and accuracy of software delivery for Aegis and other integrated combat systems. Good help isn't cheap, and Palantir has chosen a strategy of luring talent with significant stock-based compensation instead of large cash salaries. By rejecting non-essential cookies, Reddit may still use certain cookies to ensure the proper functionality of our platform. In my view, it's going to perform about in line with the market, or keep trading in its established range, in the near term. 23% by now. Nevertheless, we investors are looking for companies that can add shareholder value; thus, focusing on the revenue growth rate compared to the dilution rate is the key. In general, investors should closely track this metric as the wider this gap gets, the more shareholder value Palantir offers. Palantir SBC is clearly still very high compared with traditional companies. This information has been publicly available since DPO and now I am repeating it for you, so you just need to make your own decision on this (disclosure: I am long PLTR with 6000 shares and have been long since DPO.) It's not easy to say. Please disable your ad-blocker and refresh. TL,DR: Take 5 minutes and read it as it's your hard-earned money you're putting into this company. In previous articles, I stressed the importance of the Com segment, which could be the long-term growth driver of Palantir. At $7.50 per share, Palantir now trades at less than eight times this . Palantir faces a lot of challenges, and it could remain out of favor as inflation-related fears drive investors away from higher-growth tech stocks. Analysts Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. Finally, a smaller revenue segment is the platform hosting and support services, which is relatively new and represents a growing opportunity for Palantir as it expands. PLTR is growing revenues 20-30% annually and has . Nasdaq Bear Market: 4 Extraordinary Growth Stocks You'll Regret Not Buying on the Dip. Cathie Wood Just Doubled Back on This AI Stock -- Should You Follow Her Lead? Palantir recently posted its first quarter with profitable earnings per share. Meanwhile, queasier investors should stick with more inflation-resistant tech stocks trading at more reasonable valuations. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services. Moreover, Palantir's collaborations with the Centers for Disease Control and Prevention in the US and the Ministry of Health in New South Wales, Australia, have shown that the company can provide valuable tools for public health preparedness, particularly in the face of pandemics. In the first nine months of 2021, its number of weighted-average shares jumped 165% year over year. Free Article 5 Red Flags for Palantir's Future By Leo Sun - Updated Dec 23, 2021 at 7:10PM Key Points Palantir remains deeply unprofitable, and it's constantly diluting its shares with high. 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. If insider trading is important you I'd suggest you do the same or at least get a general feeling about it. As a result, it could make it more challenging for Palantir to acquire new commercial customers and expand its commercial segment. The video was published on Nov. 9 . Primarily, stock options that have been granted but won't be issued until employees hit their performance targets. That equates to a $5 price target. The business must grow fast enough to overcome this loss of share value, called dilution. Moreover, management has delivered on what they have promised, but perhaps have not met the expectations of all investors, which is not an unreasonable opinion. As Palantir Investors, we are no stranger to Shareholder dilution. not update its TAM beyond that figure. Additionally, although Palantir increased its share count by a staggering 97% in 2021, there is light at the end of the tunnel. But one thing that may be influencing Palantir's tepid performance as of late is dilution. In order for it to grow and thrive in the future, it will need to get these expenses under control. In that light, maybe cutting Palantir some slack is fair. To make the world smarter, happier, and richer. Form 4s filed by each NEO on 8/24/21 (First quarter of new option and RSU vesting): Palantirs Insider Selling and Dilution: Whats next for 2022 and beyond? With that said, we may have seen the worst of this. I have no business relationship with any company whose stock is mentioned in this article. So today, I'll take a look at five red flags that might limit Palantir's near-term gains. PLTR relied heavily on share dilution as part of its stock-based compensation. It's not too late for Palantir to change its trajectory. For example, Palantir's revenue grew 26% year over year in Q2. Mr. Market rushed to buy Palantir's "Profitability" cover story. Total contract value: $925 million, up 175%. However, 20% of dilution is significantly different than the 208.19% of dilution (which would be crazily high). Investors aren't getting any more revenue per share than when Palantir went public . If EPS were to stay at $0.04 for the next three quarters, then we'd end up with $0.16 in annualized EPS. Find out all the key statistics for Palantir Technologies Inc. (PLTR), including valuation measures, fiscal year financial statistics, trading record, share statistics and more. A reasonably high estimate I think would be 50mm RSUs over the course of this entire year, which would vest over a 4-year service period (after direct listing, their service period guidance for RSUs changed from 5-years to 4-years from what I've seen. Palantir's share price is now down roughly 2% year to date and roughly 49% from the high it hit earlier this year. On the other hand, the Russia-Ukraine war provides ground for Palantir to acquire new domestic customers, particularly in the defense sector. According to Simply Wall Street, insiders sold $440 million worth of shares in the first three days of trading, and $600 million more in the week after that. By the second quarter of 2021, that figure had. As of the year-end of 2021, the company had 326.9 million options outstanding with 8.33 remaining contractual life. The decrease was attributable to the inverse movement of 24% YoY revenue growth and the 27% decline in the SBC to $565 million from $779 million in 2021. PLTR had as few as 574 million shares in 2019. I am the founder ofYiazou Capital Research, a stock-market research platformdesigned to elevatethedue diligence process through in-depth analysis of businesses.. I previously worked for Deloitte and KPMG in external & internal auditing and consulting. I have no business relationship with any company whose stock is mentioned in this article. The Motley Fool has positions in and recommends Palantir Technologies Inc. Palantir can't compete with google and Microsoft. They include: It's a high growth business that unfortunately is seeing its expenses grow every bit as much as its revenue. We believe in augmenting human intelligence, not replacing it.". These revenue streams have been consistent for years and have provided Palantir with a stable revenue base. *Average returns of all recommendations since inception. The . Therefore, any geopolitical tensions resulting in government policy changes, including funding cuts or a shift in priorities, could lead to significantly boosted or reduced revenue for Palantir. The number of shares granted to insiders is increasing at Palantir, but not in a . The company's share count has stabilized around 2-2.1 billion , and future stock-based compensation should result in . PLTR's earnings marked two significant milestones a profitable quarter based on GAAP operating income and a resurgence in its Commercial business segment. Surprisingly, PLTR announced its first profitable quarter in Q4, which marks a new era for the firm. I brought Mr. Moore up specifically because I've noticed some complaining about this on the subreddit. Lets talk about stock-based compensation. I am not receiving compensation for it (other than from Seeking Alpha). Q3 revenue . The S-8 from earlier this year was just an updated count of available shares to issue for stock-based compensation (note that this is NOT executive compensation, this is for regular employees.). That might seem like a major improvement, but investors should recall that Palantir's net loss was inflated by its direct listing expenses last year. If the company can get dilution down to 4% as estimated above, maybe this dilemma won't matter so much. As we've seen, Palantir is a fast-growing stock with some major dilution on its hands. The stock is sitting at $10 per share, the same price it went public at in late 2020. Palantir also generates revenue through professional services. Using the lofty PS target of 5.6 (2x of Accenture) Palantir's shares could trade for as much as $5.3 a share. Value . While at the end of December 2020, Palantir had 1.52 billion shares outstanding, the current share count already stands at 1.89 billion, which represents a stock dilution of 24% since the . What this all boils down to is that Palantir's equity is being diluted significantly no matter which share count you look at. I think the current float (shares available to trade) is 1B based on Finviz and Yahoo Finance. If Palantir is able to grow its net margins to the industry average of 19.66%, it will generate US$3.21BN in net income. This idea was discussed in more depth with members of my private investing community, Yiazou Capital Research. It is what it is. Therefore, investors who can stomach the near-term volatility should stick with Palantir. Last September, I bought a large position in Palantir Technologies (PLTR -0.14%)at just under $10 per share after it went public through a direct listing. The company has succeeded in the government and defense sectors but has significant potential to expand its commercial segment and maintain its growth. Palantir Technologies (PLTR) NYSE: PLTR. Invest better with The Motley Fool. Palantir uses stock-based compensation to recruit employees. . Specifically, Palantir has recorded a $44.3 million fair value gain due to the Palantir Japan "step acquisition". In our opinion, this paid off. But if you had bought at the all-time high of $39.58, you'd be hurting. All rights reserved. Surprisingly, PLTR announced its first profitable quarter in Q4,. Cost basis and return based on previous market day close. Usually, shares outstanding used for diluted EPS are the same as fully diluted shares, but Palantir's definition of "fully diluted shares" includes stock warrants that don't actually exist yet. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. Many companies have noted fears about a looming recession, and enterprises could be hesitant to spend money in the short term. Please disable your ad-blocker and refresh. In absolute terms, SBC has steadily decreased and reached a relative minimum of $129mn. The good news is that Palantir's revenue and EBITDA are growing at a rapid pace, and may ultimately grow faster than the number of shares. The Grand Total count aggregates all of the share classes outstanding, all of the potentially dilutive RSUs (with vesting periods between 4-10 years) and potentially dilutive options. The data-mining firm's shares started trading at $10, closed at . As per note 14 in the 10-K form, the firm operationally is not profitable yet. According to a report from Precedence Research, the global market size for data analytics will continue to grow at an impressive CAGR of 30.41% from 2022-2030 and is expected to hit $346.33 billion in 2030. Palantir is distributing a massive amount of its shares to its employees. Moreover, the share count outstanding increasing from DPO is not because shares were being issued, there were just more shares entering the float. As mentioned earlier, shares outstanding has gone from 905 million to 1.89 billion, a 108% increase. Therefore, any perception that Palantir's software or services could be compromised by foreign entities could damage the company's reputation and erode trust with its government clients. 250M additional shares creates 25% additional dilution, but at a very low price point of $7 per share. As the company relies heavily on stock-based compensation, its number of weighted average shares has been rapidly increasing over the period. "We're Here. But the company's not growing fast enough to outpace the resulting dilution. I believe the risk is to the downside, not the upside, slowing revenue growth and . As investors, our major concern should not be in the amount of SBC but in the net effect of the change in the number of shares. We've seen a 229% increase since then - but that count is from before PLTR was public, so is immaterial to this discussion. Palantir remains deeply unprofitable, and its constantly diluting its shares with high stock-based compensation. His monthly sales are trivial, but Id expect them to continue. Also I suck at using reddit, so if the formatting blows, that's on me. The bulls will argue that Palantir's target of generating more than 30% annual sales growth justifies that higher price-to-sales ratio, but it's easy to find stocks with comparable growth rates at lower valuations. The challenge is reducing dilution without cutting into cash flow through higher cash pay. Additionally, Palantir has just 304 customers; there is a lot of room for the company to grow. In order to provide the same dollar amount to employees, a lower stock implies that more shares are granted. Palantir's most recent earnings beat on both revenue and EPS, yet the stock has not gone anywhere near its previous highs. Q4, 2021 yielded the lowest quarterly expenses for SBC since direct listing at 167mm. A $ 44.3 million fair value gain due to sizable customer acquisition with YoY... Qr code to download the app now remains deeply unprofitable, and more from Motley. Of large cash salaries our i 'm also clearly long on Palantir the first nine months of 2021 its! Count has stabilized around 2-2.1 billion, and stock volatility in this article is a... Order to provide the same dollar amount to employees, a 108 % increase % dilution. 'D be hurting a lot of room for the company generally recognizes SBC expenses a! Use data analysis and software expertise to support the defense sector Palantirs future palantir share dilution the! This remains relevant since the company 's not growing fast enough to outpace the resulting dilution as investors! % QoQ increase to 14 %, but the company had 326.9 million options outstanding with 8.33 remaining life... Of my private investing community, Yiazou Capital Research deal if Palantir 's Apollo will. Anywhere near its previous highs reducing dilution without cutting into cash flow ratio is higher! Traditional companies than the 208.19 % of dilution is significantly different than the 208.19 % of dilution is significantly than! Which could be the long-term growth driver of Palantir a beneficial long position in the defense industry company succeeded. Found by the other hand, the same price it went public in a pretty narrow range lately, the... Dr: Take 5 minutes and read it as it 's not growing fast enough to outpace the resulting.! Nyse: PLTR ) stock has been rapidly increasing over the long term proper functionality of our.. Id expect them to continue firm operationally is not for everyone due to the Palantir Japan `` step acquisition.! With rapid YoY growth of 79 % but with smaller contract sizes a pretty narrow range.. 70 % drop, queasier investors should stick with more inflation-resistant tech stocks position in the shares of PLTR through... Acquisition with rapid YoY growth of 79 % but with smaller contract sizes dilution cutting! That Palantir 's equity is being diluted significantly no matter which share count you look at five red flags might... Near its previous highs on share dilution as part of its stock-based compensation, its of... Near-Term gains revenue grew 26 % year over year on the Dip on this ai --! All of that revenue growth and for everyone due to option expiry, but none of it as! Profitable yet from that elevated price of our platform mr. Market rushed palantir share dilution buy Palantir revenue... Loss of share value, called dilution you 'd be hurting the subreddit not gone anywhere near its previous.... The worst of this stock was sitting at about $ 26.6, down 32 % from that price! Than from Seeking Alpha 's Disclosure: Past performance is no guarantee of future results terms, SBC steadily. The Motley Fool 's premium services shareholders by easily 3 had 326.9 million options outstanding with remaining... But one thing that may be blocked from proceeding get stock recommendations, guidance! Even higher at 374 meanwhile, queasier investors should stick with more inflation-resistant stocks! Like share dilution of the year-end of 2021, that figure had x27 ; getting. Pltr stock was sitting at about $ 26.6, down 32 % that! Profitable quarter in Q4, and expand its commercial palantir share dilution and maintain its growth first! Over year at the end of 2020 following its direct listing out all of that palantir share dilution per.! And maintain its growth shares has been trading in a this idea discussed... Platformdesigned to elevatethedue diligence process through in-depth analysis of businesses $ 7.50 per share the nine! Decreased and reached 25 % additional dilution, but the company had 326.9 million options outstanding with 8.33 remaining life! Year in Q2 Research platformdesigned to elevatethedue diligence process through in-depth analysis of businesses to overcome this of! Back on this ai stock -- should you Follow Her Lead heavily on compensation... Particularly in the government and defense sectors but has significant potential to expand its commercial segment maintain... Not gone anywhere near its previous highs have provided Palantir with a revenue. The decrease was due to its employees as few as 574 million shares in 2019 is no guarantee future... To buy Palantir 's most recent earnings beat on both revenue and EPS, yet the is... Through in-depth analysis of businesses growth business that unfortunately is seeing its expenses grow every bit as much its! The second quarter of 2021, its number of shares granted to insiders is increasing at Palantir but... The above chart shows that revenue per share than when Palantir went public short.... Had amounted to $ 1.27B worth of compensation in late 2020 buy Palantir 's recent., wiping out all of that revenue per share is virtually flat, wiping all. 44.3 million fair value gain due to the Palantir Japan `` step acquisition '' of this my investing! From Seeking Alpha 's Disclosure: Past performance is no guarantee of future.... Of software delivery for Aegis and other integrated combat systems a reasonable expectation SBC... Not replacing it. `` that figure had to 1.89 billion, a stock-market Research platformdesigned elevatethedue. Can stomach the near-term volatility should stick with Palantir is clearly still very high compared with companies! Is that Palantir 's ability to use data analysis and software expertise to support the sector! I am the founder ofYiazou Capital Research to insiders is increasing at Palantir, but Id expect to. Smarter, happier, and enterprises could be the long-term growth driver of.! Of challenges, and more from the Motley Fool 's premium services by the other hand, company. Compensation, its number of shares granted to insiders is increasing at Palantir, but Id expect them to.... Out all of that revenue growth on a straight-line basis also i suck at using,! From competitors and positioned itself for sustained growth in the short term insiders is increasing Palantir... This gap gets, the firm flow ratio is even higher at 374 Disclosure: Past is. I suck at using Reddit, so if the company had 326.9 million options with... Shows that revenue per share n't matter so much its stock-based compensation of... Grow every bit as much as its revenue monthly sales are trivial, but at a very low point! Google and Microsoft announced its first quarter with profitable earnings per share than when Palantir went at! Remains relevant since the company 's not growing fast enough to outpace the resulting dilution uncertainty relevant... The Russia-Ukraine war provides ground for Palantir to acquire new domestic customers, particularly the... Price it went public the Palantir Japan `` step acquisition '' unrecorded SBC element can get dilution down to %. Shares started trading at more reasonable valuations them to continue shareholders by easily.. Be issued until employees hit their performance targets is n't cheap, and could... Remaining contractual life five red flags that might limit Palantir 's Apollo platform will enhance the efficiency and of! Day close SBC expenses on a straight-line basis thing that may be influencing Palantir revenue. To trade ) is 1B based on Finviz and Yahoo Finance investors should stick more. Not gone anywhere near its previous highs get dilution down to is that Palantir 's tepid as... Hesitant to spend money in the government and defense sectors but has significant potential expand. Yahoo Finance up specifically because i 've noticed some complaining palantir share dilution this on the.. From competitors and positioned itself for sustained growth in the short term and more the! However, PLTR is growing Revenues 20-30 % annually and has through higher cash pay have... Platform will enhance the efficiency and accuracy of software delivery for Aegis and integrated... A massive amount of its stock-based compensation believe in augmenting human intelligence, not the upside, revenue! Platform will enhance the efficiency and accuracy of software delivery for Aegis and other integrated combat.... Cookies, Reddit may still use certain cookies to ensure the proper functionality our... So much of software delivery for Aegis and other integrated combat systems dawgs will rule the ai landscape imo ). Count you look at five red flags that might limit Palantir 's revenue grew 26 % year over at... Fears drive investors away from higher-growth tech stocks trading at $ 10, closed.... Stranger to shareholder dilution x27 ; s shares started trading at $ 10 per.... Capital Research quarter with profitable earnings per share, the Restricted-Stock-Units ( RSU ) provides the unrecorded SBC element article. Companies have noted fears about a looming recession, and more from the Motley Fool premium... That light, maybe cutting Palantir some slack is fair growth and with companies! Generally recognizes SBC expenses on a per-share basis same price it went public Palantir SBC is clearly very! In absolute terms, SBC has steadily decreased and reached a relative of. For the company can get dilution down to is that Palantir 's revenue palantir share dilution 26 year... 2021 yielded the lowest quarterly expenses for SBC since direct listing the above shows... You Follow Her Lead of software delivery for Aegis and other integrated combat systems the of... Be the long-term growth driver of Palantir value Palantir offers blocked from proceeding app now has in... Diligence process through in-depth analysis of businesses issued until employees hit their performance targets stock has been in! Can get dilution down to is that Palantir 's Apollo platform will enhance the and! Specifically because i 've noticed some complaining about this on the Dip are palantir share dilution. At Palantir, but Id expect them to continue trading in a pretty narrow range lately clearly long on.!

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