00:00 When Palantir reported earnings last month the stock jumped over 20%,
00:04 that rally continued and the stock is now up 129% year to date. That means the company is
00:11 now valued at $31 billion, with $2.9 billion of cash and investments and zero long term debt,
00:17 the enterprise value is $28.2 billion. Palantir's rally can be explained by
00:22 three main factors. Continuing top line revenue growth, another quarter of profitability,
00:28 and excitement for its generative AI platform. Revenue in Q1 increased 18% to $525 million,
00:36 taking the total over the last 12 months to $2 billion and net income was positive for the
00:41 second quarter in a row. But you can see that net income over the last 12 months is still negative
00:47 at -$250 million, with a quarter of all expenses being paid in stock based compensation, but the
00:54 company does have positive free cash flow to the tune of $346 million. Growth at Palantir is still
01:00 impressive with average revenue growth of 37% over the last few years and the company appears
01:06 to be winning new contracts on a regular basis. But the revenue growth rate does seem to be
01:11 declining and this is still an expensive stock, trading at 14 times revenue and almost 82 times
01:17 free cash flow. In addition, stock based compensation remains significant. Back in December 2020,
01:24 there were 1.8 billion shares outstanding. At the end of March 2023, that number had risen above
01:30 2.1 billion. A Bear report last week claimed that Palantir is more of a consulting firm than a
01:35 software company. It claimed Palantir invested in a number of SPACs on the basis that they would
01:40 then purchase Palantir's software. It seems that Palantir offers founders generous exit strategies
01:46 so it can acquire companies and convert them to Palantir's products. The Bear report also
01:51 alleged a history of employee dissatisfaction and a toxic work environment. All that said,
01:57 this information has been known for a long time and it's not had any effect on Palantir's stock.
02:02 Palantir clearly has a well regarded product as it's been awarded multiple contracts with US and
02:07 UK governments. Just this week, the company announced a new $463 million deal to put AI
02:14 into the US military, as well as a deal with Amazon's AWS. Such large deals no doubt require
02:20 some level of human input and that adds to evidence that Palantir at least has some consulting
02:25 elements. And that raises a key question over valuation. At 14 times revenue and 81 times free
02:32 cash flow, the stock is valued more like a hyper growth software business than a consulting firm.
02:38 If it truly is a consulting firm, then those multiples need to come down.
02:42 I gave Palantir a bullish score of 4 when the stock traded around $9 a share. Now that the
02:48 stock has almost doubled, I think there's a need for caution which is why I now give it a neutral
02:53 rating. But these are my personal opinions, not financial advice and I've got no position
02:57 in Palantir's stock.
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