Should you buy Palantir stock? Feb 2023
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What most people don’t know is that Palantir is actually older than Facebook as it was founded back in 2003. But the company has been public for less than 3 years and its share price has been quite volatile.
Right now the company has a market cap of $19.1 billion. It’s got $2.6 billion in cash and no debt which translates to an enterprise value of roughly $16.5 billion.
Revenue over the last 12 months is 1.9 billion, free cash flow is 184 million and net income is negative 371 million. That means the company is valued at 8.7 times revenue or 90 times free cash flow.
Although the company has negative 12 month net income, it did post its first profitable quarter in Q4 and this led to a 20% rally in the stock. However, that gain has reversed over the last few days.
One reason Palantir has been able to operate at a loss for so long is share based compensation. During 2022, it amounted to $565m, which was 30% of annual revenue. And between December 2020 to December 2022, shares outstanding increased by 14%.
That said, Palantir appears to be moving in the right direction. 2022 revenue was up 24% year over year with growth in both government and commercial segments.
Gross margins have increased from 68% back in 2020 to 79% last year and operating expenses have actually decreased from 1.9 billion in 2020 to below 1.7 billion in 2022. That’s something not many other companies have been able to achieve in this inflationary environment.
Based on their CEO, Alex Karp, Palantir can generate at least $4.5 billion in revenue by 2025, which is more than double last year’s figure.
What most people don’t know is that Palantir is actually older than Facebook as it was founded back in 2003. But the company has been public for less than 3 years and its share price has been quite volatile.
Right now the company has a market cap of $19.1 billion. It’s got $2.6 billion in cash and no debt which translates to an enterprise value of roughly $16.5 billion.
Revenue over the last 12 months is 1.9 billion, free cash flow is 184 million and net income is negative 371 million. That means the company is valued at 8.7 times revenue or 90 times free cash flow.
Although the company has negative 12 month net income, it did post its first profitable quarter in Q4 and this led to a 20% rally in the stock. However, that gain has reversed over the last few days.
One reason Palantir has been able to operate at a loss for so long is share based compensation. During 2022, it amounted to $565m, which was 30% of annual revenue. And between December 2020 to December 2022, shares outstanding increased by 14%.
That said, Palantir appears to be moving in the right direction. 2022 revenue was up 24% year over year with growth in both government and commercial segments.
Gross margins have increased from 68% back in 2020 to 79% last year and operating expenses have actually decreased from 1.9 billion in 2020 to below 1.7 billion in 2022. That’s something not many other companies have been able to achieve in this inflationary environment.
Based on their CEO, Alex Karp, Palantir can generate at least $4.5 billion in revenue by 2025, which is more than double last year’s figure.
Transcript
00:00 Should you buy Palantir stock? What most people don't know is that Palantir is actually
00:04 older than Facebook as it was founded back in 2003 but the company has been public for
00:09 less than 3 years and its share price has been quite volatile. Right now the company
00:14 has a market cap of $19.1 billion, it's got $2.6 billion in cash and no debt which
00:20 translates to an enterprise value of roughly $16.5 billion. Revenue over the last 12 months
00:26 is $1.9 billion, free cash flow is $184 million and net income is -$371 million. That means
00:34 the company is valued at 8.7 times revenue or 90 times free cash flow. Although Palantir
00:41 has -12 month net income it did post its first profitable quarter in Q4 and this led to a
00:47 20% rally in the stock however that gain did reverse over the next few days. One reason
00:52 Palantir has been able to operate at a loss for so long is share based compensation. During
00:58 2022 it amounted to $565 million which was 30% of annual revenue. Between December 2020
01:06 to December 2022 shares outstanding increased by 14%.
01:11 That said Palantir appears to be moving in the right direction. 2022 revenue was up 24%
01:17 year over year with growth in both government and commercial segments. Gross margins have
01:22 increased from 68% back in 2020 to 79% last year and operating expenses have actually
01:29 decreased from $1.9 billion in 2020 to below $1.7 billion in 2022. That's something not
01:36 many other companies have been able to achieve in this inflationary environment. Based on
01:41 CEO Alex Karp, Palantir could generate at least $4.5 billion in revenue by 2025 which
01:48 is more than double last years figure. If you assume gross margin and operating expenses
01:54 remain the same, Palantir could then achieve operating income over $1.6 billion or net
01:59 income of over $1.2 billion in 2025. That equates to an incredible net margin of over
02:06 25%. Put a 25 times multiple on those earnings and that would give Palantir a valuation of
02:12 $30 billion in 2025 or roughly 60% upside from here. That projection is probably optimistic
02:19 though and there are many political developments that could impact Palantir's growth.
02:24 As well, Palantir's revenue is quite concentrated amongst roughly 20 clients and 6 big contracts
02:30 are coming up for renewal over the next 15 months. However, Palantir's software margins
02:35 are attractive and again the company looks to be on the right track. That's why I give
02:40 the stock a cautious bullish rating but these are my personal opinions, not financial advice
02:45 and I currently hold no position in Palantir stock.