After analyzing the prospects for its data analysis software, I suggested that if you were looking for the next big thing, “this may be worth nibbling on.”
Since then, shares are up 16% as the second quarter earnings are digested by the market. The company lost $138.5 million, 7 cents per share, on revenue of $375.6 million.
Analysts had hoped for a small profit but forgave easily as revenue climbed 49% year over year. More important, commercial revenue was up 90%.
The release trumpeted the signing of 62 deals, each worth $1 million or more, but only 20 customers were new in the second quarter. After adjustments and dilution, Palantir claimed it earned 4 cents/share. That precisely matched analyst expectations. But revenue growth was ahead of expectations by $18 million.
Palantir does big data, connecting back end collection with real time analysis. The idea is to look at all a company’s data through a single model. After the market failure of Cloudera, now owned by private equity, and of International Business Machine’s (NYSE:IBM) Watson, this is a big deal.
The promise, and continuing purchases of Palantir stock by Cathie Woods’ ARK funds, have given the company an enormous valuation, relative to its size. On August 31 the market cap was $50 billion, on 2021 revenue of maybe $1.5 billion.
Strange Days Indeed
What management is doing with Palantir’s cash is also unusual. For one thing, it has put $33 million into the Private Investment in Public Equity (PIPE) of Special Purpose Acquisition Companies (SPACs). SPACs are in bad odor these days. But Palantir believes its $310 million investment will lock in big customers.
It makes a strange sort of sense that the company would start looking at Bitcoin for payments. This is designed to protect against an unspecified “black swan event,” like a market crash, that would collapse currencies like the dollar.
Moves like these make analysts scratch their heads. But they tell retail investors that CEO Alex Karp and co-founder Peter Thiel are imbued with some special knowledge. Retail investors love the name. They also love the swashbuckling style of the two founders. They like the way they “stick it to the man,” the man in this case being the Cloud Czars. (When talking about the military-industrial complex, remember, they are they man.) They love it eschewing Silicon Valley for Denver. (Fact is, tech outfits can be based anywhere and nowhere today. Wherever you go, there you are.)
What should matter are Palantir’s efforts to expand beyond its spy-and-military base into commercial markets.
As our Luke Lango notes, this effort has only just begun. PLTR stock “absolutely dominates” use cases in military and defense, he notes. He has a price target of $30/share on the stock. Our Thomas Niel is also positive on Palantir.
The Bottom Line
Palantir’s growth is a good reason to buy the stock. Its controversies matter less than its secrecy. Remember, Karp and Thiel can’t be kicked to the curb no matter what. They’re locked-in by a dual-share structure.
Traditional analysts at Tipranks see the risk outracing the reward. Of 6 following the stock, 3 say sell. That’s not the way the kids at Reddit see it. They love the opacity, the military deals, and the idea that buying PLTR stock means participating in the “great game” of foreign intrigue.
I could care less. What I care about is real growth and profits. Right now, growth is at 50% and profits are a mirage. You can speculate on that, but just remember that Palantir is already an expensive stock. Meeting expectations won’t be good enough.
On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at firstname.lastname@example.org or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.