Shares of data analytics company Palantir(NYSE:PLTR) are getting beaten down more than most stocks during the current market correction. The price of PLTR stock is down almost 30% in the last three weeks, closing Wednesday at pennies below $13 a share.
In fact, PLTR stock is now 70% lower than its 52-week high of $45. The decline in Palantir’s share price has far outpaced the year-to-date losses for the technology-laden Nasdaq-100 index(down 15%) and the benchmarkS&P 500 index(down 9%).
Palantir’s steep pullback raises the question of whether there is something seriously wrong with the tech firm, or if the stock is simply caught up in the selloff of high value, unprofitable tech names?
Growth But No Profits
On the face of it, Palantir, which helps clients integrate, manage, and secure their data, is firing on all cylinders. In last year’s third quarter, the company reported top-line sales of $392 million, which was 36% higher than the $289 million recorded a year earlier.
Palantir’s commercial customer base rose 46% between the second and third quarters, and the company inked new contracts to service the data needs of the U.S. Air Force, the National Institutes of Health, and the U.S. Department of Health, to name only a few.
In all, Palantir closed 54 deals in Q3 that were each worth more than $1 million. Last fall, the company announced that it had won an$823 million contractto provide data and analytics software to the U.S. Army.
Palantir also has strong gross and operating margins. For the third quarter, the company’s gross margin was an impressive 78%. Its adjusted operating income for the quarter came in at $349 million, representing a respectable margin of 32%.
While the huge growth was enough to send PLTR stock higher for much of 2021, investors are now shunning the company’s shares in favor of lower valued companies that are profitable. Many analysts on Wall Street scold Palantir for remaining unprofitable even though the company has been in operation for nearly 20 years.
The company has posted net losses every year since it was founded in 2003. For all of 2020, Palantir’s net loss amounted to $1.17 billion.
Elephant In The Room
In addition to its lack of profits, Palantir also draw criticism for its stock-based compensation that it pays to its executives and employees. The company uses a large amount of stock-based compensation to both reward and retain staff, which it says is part of its corporate culture. Through the first three quarters of last year, Palantir shelled out $611 million in stock-based compensation.
Critics point to this stock-based compensation as increasing the company’s share count and diluting the investments of existing shareholders. Palantir counters this argument by saying that stock-based compensation allows it to preserve cash as it aggressively expands the business.
Palantir also defend sits stock-based compensation as a means of attracting and retaining specialized and highly skilled software developers in a tight labor market, and as a way of ensuring that staff’s interests are aligned with the interests of shareholders.
Still, during the third quarter of last year, Palantir paid $184 million in stock to employees while bringing in $392 million in new revenue. This led to yet another net loss for the quarter and left many analysts and shareholders shaking their heads.
Despite the ongoing criticism, Palantir stresses that its focus remains on growing its business and capturing market share, and that profitability is a secondary consideration.
Palantir has also raised eyebrows with its plan to enter the cryptocurrency sphere. The company has said that its technology can detect money laundering schemes on cryptocurrency exchanges and help to reduce instances of fraud.
While the cryptocurrency push could have potential, entering the highly volatile realm of digital coins and tokens has made some investors even more skittish about PLTR stock and where management plans to take the company.