Is Palantir breakout action in 2022?

Ostarted out as a data analytics company that catered to the US government, Palantize (NYSE: PLTR) pivoted to offer its services to the civilian market. Some people worry that the government has access to too much personal data, and Palantir processes some of the information, which makes the stock controversial for some.

As Palantir turns to commercial customers, can it free itself from its government-affiliated stigma?

Image source: Getty Images.

Enable companies to process data and provide the best insights

Palantir has three main offerings: Foundry, Gotham, and Apollo. Foundry is a data management platform that enables companies to interpret information flows. Tools like artificial intelligence (AI) and machine learning improve processing and can identify bottlenecks in the supply chain, something all businesses could use with today’s issues. With Foundry, writing code isn’t required to analyze data, making it easy to implement in all types of businesses.

Gotham is often used by governments to process real-time information and then cleanly present critical data so those making decisions have the best chance of success. Former U.S. Secretary of Defense James Mattis said Gotham “has developed groundbreaking technologies that help us make better decisions in combat zones. You’re giving us the advantages right now that we need.” need”. Gotham can be used in military applications, but it also works with disaster response and law enforcement.

Apollo software allows Foundry to operate across multiple networks, whether on-premises data centers or cloud networks. Companies can also use multiple cloud providers, so Amazon Where Microsoft cannot lock a company into unreasonable contracts. This gives Palantir an edge over typical software-as-a-service (SaaS) businesses, as most require sticking with a single vendor, whether on-premises or in the cloud.

Strong growth, but with a caveat

Looking at Palantir’s earnings performance quarter over quarter can be misleading. Palantir’s deals are often massive — it closed 54 deals worth at least $1 million and 18 worth $10 million or more in the third quarter alone — and can lead to some odd comparisons. Still, Palantir had a strong third quarter and did well in 2021.

Third-quarter revenue increased 36% to $392 million, bringing the remaining deal value to $3.6 billion, a 50% increase from the third quarter of 2020. Demonstrating its expansion in business civilians, its number of commercial customers has increased by 135% in just nine months. Although it’s too early to tell, the expansion of Palantir’s business model seems to be working.

Palantir is not yet profitable, mainly due to its massive stock-based compensation bill. During the third quarter, it paid out $184 million in stock to its employees while grossing $392 million. This led to an abyssal net loss margin by 26%. Once that expense is taken out – investors should be careful when stock-based compensation is so high – the net margin is 21%. Because this expense is non-cash, Palantir is free cash flow positive and boasts an impressive 30% margin.

Stimulating growth with equity compensation is a great strategy for capturing market share, as it allows management to hire talent by compensating them generously with stock – a cheap currency that can be created by the company . However, companies need to balance this expense; shareholders will not tolerate this strategy forever because existing shares are diluted each time a new one is created.

The future of Palantir

Like many unprofitable high-growth tech stocks, Palantir has seen its valuation reduced over the past month.

Table of PLTR PS ratios

PS PLTR report given by Y charts.

Still, a price-to-sales multiple of 23 is expensive to pay for a stock growing 36%. Reviewing Palantir with a rule of 40 – often used to judge whether a business is growing fast enough to justify losing money – is calculated by adding its revenue growth to a profit margin of some type and checking whether it is greater than 40%. With revenue growth of 36% and a negative net margin of 26%, Palantir fails this test with a paltry 10%.

The company is capturing an exciting new market segment in cryptocurrency exchanges. With Foundry, platforms can detect money laundering schemes and reduce fraud. Although the crypto market opportunity is still young, it could have a significant use case for many entities, including the government.

A competitor of Palantir is Alteryx (NYSE: AYX). Alteryx offers plenty of data analytics tools, but its stock has been hammered over the past year due to lackluster revenue from moving to the cloud. As Alteryx completes the transition to the cloud, the battle between the two could heat up. However, there is plenty of room for multiple winners in the data analytics space.

Palantir has ongoing dynamic in 2022. I expect him to continue to grow his revenue and customers rapidly. Yet his stock-based compensation will keep him from becoming profitable for years. Additionally, Palantir is often mentioned on Reddit forums and could lead to big price moves, depending on what the community tries to do. However, I think Palantir can still be a great long-term investment.

While I don’t know how 2022 will handle Palantir, its long-term outlook is bright.

10 stocks we like better than Palantir Technologies Inc.
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisor, tripled the market.*

They have just revealed what they believe to be the ten best stocks for investors to buy now…and Palantir Technologies Inc. was not one of them! That’s right – they think these 10 stocks are even better buys.

View all 10 stocks

* Portfolio Advisor Returns as of December 16, 2021

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a board member of The Motley Fool. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Keithen Drury owns Alteryx. The Motley Fool owns and recommends Alteryx, Amazon, Microsoft, and Palantir Technologies Inc. The Motley Fool recommends the following options: January 2022 long calls at $1,920 at Amazon and January 2022 short calls at $1,940 at Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Comments are closed.