This controversial company could be a good bet for a risky portfolio, but what are the pros and cons of investing in Palantir?
Palantir Technologies (NYSE: PLTR) has made its fair share of headlines, such as when it was contracted to help the U.S. Department of Health and the British National Health Service control the flow of coronavirus-related data. Since its public debut, the stock has been on a bit of a rollercoaster ride, with a huge run-up followed by a cooling-off period over the past few months. Up more than double its September 2020 IPO price, we ask if Palantir is a good stock to invest in.
The bull case for Palantir
Palantir's revenue comes in thick and fast from contracts predominantly agreed with governments and large enterprise clients. To showcase this, its average revenue per grew to $8.1 million in Q1, 2021, up from $7.9 million in 2020. Overall revenue grew 49% year-over-year in Q1 to $341 million. Government revenue account for $208 million of this, with commercial contracts hitting $133 million.
Palantir is a company that operates discreetly, yet it was instrumental in locating Osama Bin Laden in 2011 and is now a leading contractor for the new Brexit border in the U.K. In fact, Palantir has many surprising deals including one with the Nobel Peace Prize-winning World Food Programme. The company believes that its addressable market is worth $119 billion so it is likely to see more contracts like these in the future.
The company also turned many heads at its Q1 update following the announcement that it would be accepting Bitcoin as a form of payment. What's more, it also suggested that Palantir could add the cryptocurrency to its balance sheet in the near future.
Palantir expects to be profitable for the first time in its history some time this year. Management predicts annual revenue growth of 30% or greater for 2021 through 2025, and with Foundry just getting started and the private market still untapped, that looks achievable.
The bear case for Palantir
After 17 years, Palantir is still not profitable (though we've just seen that could change), but it is improving. At first glance, its $1.17 billion loss from operations in 2020 might seem daunting. However, the company awarded $1.27 billion in stock-based compensation throughout the year, as well as incurring one-off costs involved in its direct listing. This means that it actually had an adjusted operating income of $190 million for the year. It will be interesting to see if the business can officially become profitable in 2021.
While Palantir's government contracts bring in some big revenue, there is also a reputational risk as it is now being linked to ethical issues through its government relationships. For example, the controversial U.S. deportation scheme ran by ICE uses Palantir technology. Unfortunately for the company, this presents a PR problem as the nature of deals with government bodies often require less transparency and more secrecy. Furthermore, other commercial company's are likely to keep Palantir at an arms-length due to employee backlash over ethical concerns, such as Amazon back in 2019.
So, should I invest in Palantir stock?
Palantir is an interesting stock to look at, for whilst its technology has been vital for many world-changing organizations, such as the World Food Programme and COVID-19 resources, unfortunately, the company does not have much of a moral compass when it comes to deciding the purpose of its technology.
Whilst operating in the grey areas of ethical issues brings in high revenue in the form of government contracts, it could present real problems for attracting a broader range of clients in the future.
Palantir's shady dealing not quite to your liking? Never fear; MyWallSt's got a host of data-savvy investments that don't come with the same risks. You can get access to our market-beating list of stocks by simply clicking here and getting free access today.
Quickfire round
- What does 'Palantir' mean?
The word Palantir comes from the 'Lord of The Rings' books by J.R.R Tolkien and it is an unbreakable ball of crystal used to communicate with other Palantir wielders or see other parts of the world in the future, present, or past.
People have taken a dislike to Palantir as the leaders of the company possess strongly held beliefs about needing more surveillance-tech for the world that we currently live in.
Palantir Gotham is a platform that Palantir offers to integrate and transform all types of data and then meaningfully connect them into something tangible.
MyWallSt operates a full disclosure policy. MyWallSt staff currently holds long positions in companies mentioned above. Read our full disclosure policy here.
