Palantir: Will Investors Embrace Intelware Outfit Generating Consistent, Substantial Losses for More Than a Decade?

September 11, 2020

The stock market is chugging along, fueled by greed, the Rona, and a need to fuel the 21st-century F. Scott Fitzgerald gestalt. “Palantir Is Being Valued around $10.5 billion ahead of Direct Listing as Investors Question Growth Story” includes some interesting information about Palantir, an intelware startup which is only 17 years old, losing money, and shrouded in mysterious behavior.

The write up states:

Palantir said in its updated prospectus on Wednesday that it has 1.64 billion shares outstanding, as of Sept. 1 [2020]. Based on the average private market transaction price in the latest quarter of $6.45 a share, the company is being valued by investors at just over $10.5 billion. That’s far below Palantir’s valuation of $20.4 billion in a 2015 funding round.

Is “far below” a signal?

The write up notes:

In July, Palantir raised $410.5 million by selling shares at $4.75 a piece, according to the filing, which comes out to a valuation of about $7.8 billion. Transactions during the quarter took place at anywhere from $4.17 a share to $11.50 a share, suggesting a range of $6.83 billion to $18.8 billion. The math gets even fuzzier when considering that Palantir had a reported valuation of $20.4 billion in 2015, when the share price was $11.38. That price, based on the supplied share count as of Sept. 1, would indicate a current valuation of $18.6 billion.

Interesting.

But the losses need to be viewed differently; for example:

Palantir wants investors to concentrate on what the company calls its contribution margin, or the revenue left after subtracting the costs it bears to generate sales. That number climbed to 55% in the second quarter from 18% a year earlier.

I don’t recall “contribution margin” from my economics class in 1962.

The write up points out:

Palantir has only 125 customers that spent on average $5.6 million each in 2019. Glazer says the company’s products and sales strategies are “in their infancies.”

DarkCyber believes that Palantir’s trajectory over the last decade makes clear that there is a glass ceiling for software and services centric solutions. If our data are semi-accurate, Palantir is unlikely to grow in a way to repay its investors or achieve profitability in a highly competitive market sector.

Interesting play in the time of Rona, constrained budgets in government agencies, and a hint of financial desperation in some allied sectors.

Stephen E Arnold, September 11, 2020

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