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Breaking: Palantir Introduces Software for Crypto Exchanges

Stock (Symbol)

Palantir (PLTR)

Stock Price

$25

Sector
Technology
Data is as of
October 20, 2021
Expected to Report
November 10
Company Description
Palantir Technologies Inc. builds software platforms for institutions. The Company operates two segments: commercial, which serves customers working in non-government industries, and government, which serves customers that are agencies in the United States federal government and non-United States governments. It has built two software platforms, Palantir Gotham (Gotham) and Palantir Foundry (Foundry). Gotham is a software platform, which is constructed for analysts at defense and intelligence agencies. Gotham enables users to identify patterns hidden within datasets, ranging from signals intelligence sources to reports from informants, and helps the United States and allied military personnel. Foundry creates a central operating system for organization’s data. Individual users can integrate and analyze the data. Source: Thomson Financial
Sharek’s Take
David SharekYesterday, Palantir (PLTR) announced a software platform for FinTechs and banks to manage crypto currency exchanges. Foundry for Crypto gives financial institutions gives crypto exchanges, FinTech companies, and banks the ability to have a secure platform, complete with fraud detection and anti-money laundering capabilities. This news is breaking, thus there is little information to analyze right now, but Palantir has what I believe is the smartest software platform around, and with crypto currency expanding in popularity, banks and brokerage firms need to step their platforms up a notch to hold and trade crypto. Foundry for Crypto could be a catalyst for the stock. 

Palantir takes a customers data and/or public data and solves complex problems that a regular program can’t solve, such as how to rescue a hostage, where to seat passengers on a flight, logistics for COVID-19 vaccines, or how much product (i.e. candy bars) can be sold to different areas around the world — depending on the weather — and if you’re missing one key ingredient for that candy bar, which customers will be affected most and by how much. Palantir’s intelligence software as it is an integral part of the Department of Defense and law enforcement agencies. As of Fiscal 2020, Palantir’s platform were used by 139 customers including the U.S. Army, which uses the software to make command decisions and ensure readiness for 1 million soldiers and personnel. Palantir has built two principal software platforms:

  • Palantir Gothama state-of-the-art intelligence platform for police and military. Its first software platform for analysis at defense and intelligence agencies. Gotham allows users to identify patterns in data including intelligence sources and informants to help U.S. and allied military. Gotham is becoming the main data software for many of America’s defense and intelligence agencies to target terrorists and keep soldiers safe.
  • Palantir Foundry: for big companies that control the production and distribution of manufactured items. Foundry was created for companies to make sense of all the data involved in large projects. Foundry is the central decision support infrastructure for an organization that translates data into models. Demand models and production models can be adjusted if say a supplier sends only 50% of a raw material, what is the impact of on-time delivery of finished goods and which customers are most affected.

Here are some of the business highlights of PLTR as of last qtr:

  • Profits up 157% from a year ago, on 49% revenue growth .
  • Government revenue (62% of company sales) up 66%.
  • Consolidated commercial revenue (38% of company sales) up 28% while U.S. commercial sales climbed 90%.
  • Total Contract Value (TCV) bookings up 175% to around $930 billion.
  • Closed 62 deals with $1 million or more in contract value.
  • Average contract duration is 4 years.
  • Added 20 net new customers, up 13%.
  • Revenue per customer was $7.9 million, on trailing 12-month period, up 19% year-over-year.
  • Palantir deployed meta-constellation, a space AI software allowing operators on the ground to detect
    naval activities, indicators of wildfires, or adverse effects of climate change, to 237 satellites in orbit.

PLTR stock is big, growing rapidly, and expensive on a P/E basis (154). Profitwise, Palantir has an excellent Estimated Long Term Growth Rate of 49% and management said it is committing to keeping a revenue growth rate above 30% for the next five years. In 2020, revenue grew 47%, and 2021 revenue is expected to grow 35%. A growth rate that good would take revenue from ~$1 billion to ~$4 billion during that time. PLTR is a core holding in the Aggressive Growth Portfolio. I think the stock could make a strong move higher in the coming year. Crypto could be the catalyst. But in the meantime, the U.S. commercial business is flying higher.

One Year Chart
PLTR had its IPO in September 2020, and opened at $10 a share, which was a bargain as the stock ended the month with a market cap of $16.4 billion. PLTR did $772 million in sales that year, thus the stock was selling for 21x 2020 revenue at the end of September when the shares were $9.50. This qtr, PLTR sells for 32x 2021 revenue estimates. I think 35x revenue is fair, thus I feel the shares are slightly undervalued. PLTR does have a P/E of 154, which would be considered high if I valued the stock on a P/E basis.

The Est. LTG of 49% is excellent. That’s a profit growth estimate. So analysts expect profits to grow very fast during the next 3-5 years, which explains why the stock can handle a high P/E at this time.

Qtrly profit growth numbers have been outstanding. But in each of these qtrs, the year-ago periods were losses, so even a little profit would equate to an excellent growth rate. Estimates are for profit growth to go negative the next 2 qtrs, but I don’t think investors mind.

Earnings Table
Last qtr, Palantir delivered 157% profit growth and beat estimates of 130%. Revenue increased 49%, year-on-year. The company closed 30 deals worth $5 million or more and 21 deals worth $10 million or higher. A majority of their revenue came from government deals. 62% of company revenue comes from governments. The U.S. commercial business (38% of company sales) delivered 90% revenue growth year-over-year. Government revenue climbed 66%. Total number of new customers grew 13% from both government and private sector. Last qtr, the company closed 62 deals worth $1 million or higher and the total contract value from both existing and new deals is around $1 billion.

Sales growth was fueled by new deals with the U.S. Army, Air Force, Coast Guard, HHS, CDC, other international governments, and private commercial customers.

Annual Profit Estimates increased slightly, but profits are still expected to remain slim. Management maintains annual revenue guidance of around 30% for 2021 to 2025.

Qtrly Profit Estimates are for -56%, -33%, 25%, and 50% profit growth the next 4 qtrs. Notice the year-ago periods in the Earnings Table. From top to bottom: -$0.09, -$0.10, -$0.03, -$0.07, $0.09, $0.06, $0.04 and $0.04. So the last four qtrs were being compared against qtrs with losses, and now the comparisons get tough.

Fair Value
My Fair Value is 35x revenue estimates, up from 30x last qtr:

Current:
32 x $1.5 billion = $48 billion market cap
$48 billion / 1.95 billion shares = $25

2021 Fair Value:
35 x $1.5 billion = $53 billion market cap
$53 billion /1.95 billion shares = $27
Upside/Downside: +10%

2022 Fair Value:
35 x $2 billion = $68 billion market cap
$68 billion / 1.95 billion shares = $35
Upside/Downside: +42%

Bottom Line
Palantir (PLTR) was at one time one of the hottest IPOs of 2020. We saw earlier that it was because the stock was selling for a lower price-to-sales ratio. Today, the price-to-sales ratio of 32x is more appropriate. And when we put that to next year’s profit estimates, I think the shares have the ability to rise more than 40% by the end of 2022. 

Palantir certainly has the edge in gaining and maintaining big government contracts. Now the company is reeling in U.S. Commercial business. Up next, PLTR is moving towards being a player in the crypto space. That opens up avenues to work with banks (small and large), crypto exchanges, crypto hedge funds, and traditional brokerage firms. 

PLTR moves up from 14th to 10th in the Aggressive Growth Portfolio Power Rankings.

Power Rankings
Growth Stock Portfolio

N/A

Aggressive Growth Portfolio

10 of 36

Conservative Stock Portfolio

N/A

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