Palantir, who is backed by "Uncle Sam" but makes Wall Street noisy: Can you chase it?

Since its IPO in the third quarter of last year, Palantir Technologies Inc (NYSE:PLTR) has become the most controversial technology upstart on Wall Street. This big data analysis software company specializes in serving public institutions, private companies and non-profit sectors. On the one hand, Palantir has grown rapidly and has a lot of capital blessings. On the other hand, the company is not yet profitable and still faces the risk of overvaluation and unstable prospects.

From the data point of view, although Palantir once soared US$167.62 in November last year and reached US$45 at the beginning of its listing, the company’s share price has fluctuated sharply in the range of US$8.90-45 this year. So far it has fallen 12.57% to US$20.65. /Share, significantly weaker than the performance of the three major U.S. stock indexes.

So, is Palantir a revolutionary innovator with great potential or a trap of overvaluation?

According to a recent financial report, Palantir's revenue increased 36% year-on-year to $392 million, exceeding the company's mid-term compound annual growth rate of 30%. In the third quarter, the company also created free cash flow of US$119 million. Calculated based on revenue of US$392 million, the free cash flow margin was about 30%. The company also expects sales to increase by 40% this year, and substantially raises its full-year free cash flow target, raising its forecast from 300 million U.S. dollars to 400 million U.S. dollars.

However, last quarter, the company's free cash flow profit margin was only 13%, which means that Palantir's potential profitability is constantly evolving and not very stable.

From a customer perspective, the company added 34 new customers in the third quarter, while achieving strong up-sell and customer monetization. Among them, the ARPU of the top 20 customers increased by an average of 41 million US dollars, a year-on-year increase of 35%. In addition, the company's commercial department has also achieved great success, with its number of customers increasing by 46% month-on-month.

However, Palantir's excellent performance did not promote the rise of stock prices. Although the company's strong data is an important reason why some Wall Street investors are optimistic about the stock, there are still many other key factors that work together, causing the company to present greater risks.

First, most of Palantir’s revenue comes from cooperative projects with the government. For the nine months ended September 30, 2021, the company reported a total revenue of approximately US$1.1 billion, of which US$658 million came from the government, with 4.506. Millions of dollars come from other business income. In the third quarter, the company's government revenue increased by 34% year-on-year, a sharp slowdown from the 66% year-on-year growth rate in the second quarter. Royal Bank of Canada analyst Rishi Jaluria said in an earlier report that Palantir's revenue mainly relies on government departments, but we expect public sector expenditures to slow down in the future.

In addition, the company's losses are worrying. Palantir's losses have expanded year by year in the past three fiscal years, with net losses reported in 2018, 2019 and 2020 of US$580.3 million, US$581.3 million and US$1.17 million, respectively.

Finally, in terms of valuation, investors also need to be vigilant. Palantir's financing activities of selling common stock and preferred stock in 2018, 2019 and 2020 respectively generated US$10915 million, US$124.4 million and US$1.24 million, respectively. In the first half of 2021, stock sales revenue was also as high as US$37669 million. Because the company is not yet profitable, such an approach will eventually have a negative impact on its stock valuation. The increase in the number of shares will inevitably dilute the shares in the hands of investors, and this part of the return will also be offset by the increasing number of shares.

In general, it is very challenging to predict what Palantir will look like in five or even ten years. No one knows that the company’s platform is too complex, and due to lack of understanding of government anti-terrorism software, and Palantir himself The wording of its operations is obscured, so that we are basically unable to make any accurate predictions.

On the one hand, Palantir is a crazy high-risk bet. Even if the company's current revenue growth trajectory continues and eventually shows profit in the financial report, the current valuation has already taken into account this expectation, that is to say, investors almost It is difficult to see more profitable space.

However, on the other hand, the depth of Palantir's moat still fascinates many investors. Companies that have long-term relationships with the U.S. government and its allies often benefit from it. After all, Uncle Sam is still financially strong. Palantir's third-quarter results once again proved the company's high-quality customer base and its ability to increase revenue.