Does Palantir's share price performance match its CEO's salary?

This article was originally published on Opto - Invest in the Next Big Idea.

But Karp received total compensation, including options, restricted stock and salary, of $1.1bn last year -- an eye-watering amount for a company that is not yet profitable.

Since going public last September, Palantir's share price is currently up 236.3% from its direct listing of $7.25 (as of 8 June's close). Palantir's share price is flat for the year-to-date and is trading 45.8% below its all-time high of $45, recorded on 27 January. The stock is, however, up 24.65% from a recent low of $18.37 recorded at close on 13 May.

Palantir's share price has slightly underperformed the broader technology sector in 2021 -- the SPDR NYSE Technology ETF [XNTK] has gained 6.99% in the year to date through 8 June. The SoFi Social 50 ETF [SFYF], which has Palantir in its top 10 holdings, has climbed 40.94% during the same period.

The popular one

Karp's 2020 payday was more than triple the combined compensation received by the three highest-paid CEOs in the S&P 500. Paycom Software's [PAYC] Chad Richison took home $211.1m in fiscal 2020; General Electric [GE]boss Lawrence Culp received $73.2m, and Nike's [NKE]John Donahoe was paid $53.5m, according to data seen by Investor's Business Daily.

The Palantir chief's basic salary is just $1.1m, but weeks before Palantir's direct listing, he was granted 141 million class B common stocks worth $797.9m as part of an Executive Option by a Special Compensation Committee in line with the company's Executive Equity Incentive Plan. As of August this year, and every quarter after that, 2.5% of shares subject to the Executive Option will vest. Karp also received $296.4m for stock awards.

Palantir's share price surge in the first few months after its direct listing is largely down to the stock being popular among retail investors and the Reddit crowd. The social media-focused retail investors have even nicknamed the CEO "Papa Karp" on the platform.

It started following an announcement from Citron Research that it was shorting Palantir at a price target of $20. Citron Research argued that the company was "no longer a stock but a full casino", criticising its then-$50bn valuation being circa 50 times its fiscal 2020 revenue of $1.1bn. 

Nearly seven months on from the short report issued on 27 November, Palantir's current market cap is just over $46bn, around 30 times its projected fiscal 2021 revenue. During its Q1 2021 earnings call in May, the company forecast revenue to climb 30% year over year. This would put 2021 revenue at circa $4.5bn.

There are questions as to whether Palantir is overvalued or whether it has the growth to match the valuation. In its Q4 2020 earnings report in February, the company announced average revenue per customer for the fiscal year had come to $7.9m, up 41% from 2019, according to CNBC. The average for its top 20 customers was $33.2m, up 34%.

The average revenue per customer in Q1 2021 was $8.1m, up 29% year over year. The top 20 customers' contributions increased 34% from the year-ago quarter to $36.1m. The company did not disclose updated figures on its customer count, the publication said, but in the third quarter, its top 20 customers brought in 61% of fiscal 2020 revenue. 

Dented growth ambitions?

Palantir is expecting revenue to top $4bn by 2025, almost quadrupling 2020's revenue of $1.1bn. 

The Denver-based company, known for its controversial work with surveillance and national security organisations, is becoming more dependent on money from government contracts. The segment brought in $208m in the first quarter versus $133m from commercial contracts, representing circa 55% of total revenue. Fiscal 2019 revenue was split $346m and $397m respectively between the two, and $255m and $340m in fiscal 2018.

In a May note to clients seen by Barron's, Keith Weiss, equity analyst at Morgan Stanley, wrote: "[I]mproving commercial customer adds, accelerated sales hiring and building commercial pipelines look to be the building blocks for more durable growth ahead."

Weiss pointed out that the stock was trading at circa 22 times its projected 2022 sales at the time the note was published in May of this year. This, he added, meant growth was already priced in.

Meanwhile, Brent Thill, analyst at Jeffries, wrote in a note to clients seen by Investor's Business Daily: "While metrics disclosure and overall progress are encouraging, we continue to believe that a buildout of the commercial business will take time to execute."

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