Palantir: big data, bigger price drop
Palantir says that it is built for bad times. Such fortitude is needed right now. Uninspiring guidance and ongoing lack of profit from a company founded nearly two decades ago are taking their toll. On Thursday, the share price fell 16 per cent. On an enterprise value/sales ratio, Palantir is back to the level it was when it listed in late 2020.
The $23.5bn Denver-based software company, best known for its data analytics work with government agencies, is attempting to shift focus to commercial clients. Commercial revenue topped $645mn in 2021, up more than a third on the previous year. But it was dwarfed by $897mn in government revenue.
Palantir’s plan to reduce reliance on one-off state contracts and seek out recurring revenue from more corporate customers is a good one. About half of the increase in US commercial revenue last year came from existing customers. This suggests Palantir is doing a good job of increasing the range of services it offers to clients over time. The bad news is the cost of making this transition. Palantir raised its marketing spend in the final quarter of 2021 and is investing in smaller start-ups that become customers. Net losses persist, reaching $520mn last year.
Alex Karp, chief executive, points to a stable balance sheet, including $2.3bn in cash and equivalents. But Palantir also retains some of the secrecy it was once famous for. It has 147 commercial customers, for example. But it does not specify who or where all of these clients are.
The mystique fits the company’s outsider status. In an earnings video conference held on Thursday, Karp described Palantir as “non-standard” and said some people viewed him as “batshit crazy”. This plays well with retail investors. During the call, one even thanked Palantir for furthering the ideals of western democracy around the world. For the rest of the investor base, however, opacity in the middle of transition is off-putting. Details about how commercial clients are using Palantir’s services and when this will translate to profits would be more useful.