cuosulting or software?Or both

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且听风吟云起
2020-12-05

cuosulting or software?Or both？That is a question.

Palantir: Buy This Software Company When The Price Is Right

Palantir is a secretive software and consulting company that recently did a direct offering to the public.The company has a very high revenue increase rate with a high revenue run rate for this year but is still unprofitable.Is the company's services and products scalable to become more easily profitable after the initial "acquisition" of a new customer?

Palantir: Buy This Software Company When The Price Is Right

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H. Taylor","summary":"Palantir is a secretive software and consulting company that recently did a direct offering to the public.The company has a very high revenue increase rate with a high revenue run rate for this year but is still unprofitable.Is the company's services and products scalable to become more easily profitable after the initial \"acquisition\" of a new customer?","content":"<html><body><div><div><div><div>Summary</div><div><p>Palantir is a secretive software and consulting company that recently did a direct offering to the public.</p><p>The company has a very high revenue increase rate with a high revenue run rate for this year but is still unprofitable.</p><p>Is the company's services and products scalable to become more easily profitable after the initial \"acquisition\" of a new customer?</p></div></div></div><div><p>Palantir <span>(NYSE: PLTR)</span>, the super-secretive software and services company, went public on June 30. The company works with governments and enterprises, aggregating and organizing massive stored data and transforming this into usable information for decision making. Its motto is to create a “Generalizable platform for modeling the world and making decisions”. The company’s sales are expanding and they expect a lot of future, continuous growth. The question is: Is Palantir a good investment right now?</p> <p>So far, the company’s stock has meandered slightly lower over the past few days since its offering. Prior to their public offering, they were believed to be worth some $20 - $25 billion. With the recent price discovery (the company’s stock hit a high of $11.21 but is currently trading at $9.11 at the time of this writing) the market capitalization is short of these numbers coming in at $15 billion:</p> <p><img height=\"400\" loading=\"lazy\" src=\"https://static.seekingalpha.com/uploads/2020/10/5/3948-1601918672601431.png\" width=\"640\"/>(5-Minute Bar Chart; Image Source: TradingView)</p> <h2>Financial Discussion</h2> <p>First thing to note about the company’s going public is that they did not do an IPO. Instead, Palantir did a direct offering to the public. Essentially, they are not raising capital; they are said to have some $2.5 billion on hand from an earlier private offering to another party in January (Source Notes: All data is derived from the 8-K Filings with the SEC for the company’s direct offering).</p>\n<div></div> <p>With an IPO, a company is generally aligned with an investment bank that then sells shares to its own customers generating a lot of excitement. It may be that the lack of this initial offering buzz has failed to bring in the same pop in Palantir’s stock that, say, <a href=\"https://laohu8.com/S/SNOW\">Snowflake</a> (NYSE: SNOW) had just recently where their stock more than doubled on its IPO date. However, this may not have been a bad thing for Palantir as this may present itself as a buying opportunity for new investors today.</p> <p>Instead, the method of a direct offering was more of a way to afford current shareholders the opportunity to exit shares. According to Seeking Alpha’s data on the company, the average number of share being traded daily is ~90 million; there are approximately 1.7 billion outstanding shares.</p> <p>The company has revenue for 2018 and 2019 of $595 million and $742 million, respectively. Their current Revenue Run Rate for this year is approximately $962 million with recent revenue growth of 49% YoY and their gross margins are 55%. However, the company lost some ~$580 million last year. If the company hits their target of $962 million this year, I would like to see how profitable - or, unprofitable, they are - from this to determine more precisely the company's valuation.</p> <p>Palantir believes that only about 6,000 enterprises in the world would likely be a customer of theirs - these companies all generate some $500 million in revenue, or more. They believe that the Total Achievable Market (TAM) could be about $119 billion. For now, there is no real competition in this sector of the market, but, then again, there is. Companies such as Splunk <span>(NASDAQ: SPLK)</span>, Tableau <span>(NYSE: DATA)</span> and Alteryx (NYSE :AYX) are in the sphere. The industry is fairly new so each respective company is still carving out their niche leaving a lot of opportunity for companies to establish themselves giving each company the opportunity to distance themselves from each other as being unique.</p> <p>Palantir believes that the potential $119 revenue would be approximately $56 billion from governments and another $63 billion from enterprises. The question I have, and cannot discern from the 8-K filing is: With that much potential TAM, where is the economies of scale for the company to become profitable? At what level, given the companies sales, do they start to achieve profitability and from that, with their Revenue Run Rate, when can this company be more properly valued?</p>\n<div></div> <p>Palantir focuses on two main customers: Governments and enterprises. Their revenue is about equal for what they bring in from both government and enterprise, drawing in 47% from governments and the remaining 53% from enterprise.</p> <p>Here are some interesting facts about a new customer for Palantir. First, their strategy is simple: “Acquire, Expand and Scale” is their approach. When the company acquires a new customer, there is an expense by that company of approximately $100k. This acquisition takes approximately <a href=\"https://laohu8.com/S/AONE.U\">one</a> full year; a partnership with this company is definitely a “long-game” partnership. Then, Palantir expands their services and offerings to this entity, be it government or enterprise. The average customer spends $5.6 million annually after that initial year. Basically, once an entity is acquired by Palantir, they are quite successful at the expand and scale execution.</p> <p>Scalability may be the key to this enterprise where investors need to focus mostly. This is where things get a little murky with Palantir in how to define this company. They are not necessarily a SaaS type company, per se, but more of a company that is part software and part consultant. Given that, what are the costs that Palantir has in its expansion and scaling? Again, this is not easily discernible from the 8-K filing and more information is needed to determine this. The company has a very high run rate and it will be interesting to look at these jumps in revenue to see the narrowing of their losses to get a better approximation of their profitability levels and time it will take.</p> <h2>Conclusion:</h2> <p>Palantir may very well be a buy at some point. However, the scalability issue is exactly that: It is an issue to be looking at to see when they are going to be profitable. With the average of $5.6 million being spent by customers, how many more customers will the company need to acquire in order for them to become profitable? Also, is their software a “cookie-cutter” type product where a new customer needs less and less inputs from Palantir? This is where calling Palantir simply a SaaS company would not be accurate and that looking at them as both software and consulting firm is more appropriate. Given that, scalability of consulting firms is more difficult than simply using software to manipulate a company’s data.</p>\n<div></div> <p>I am neutral on this stock at this time; albeit, I think the movements lower in the stock price may continue for now. Once we see more data from the end of the year and can determine what increases in revenue translate into scalability and costs, then it may be more appropriate to consider investing in the company’s stock. I will look at this stock again after the new year.</p>\n<span></span><p><b>Disclosure:</b> <span>I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.</span> <span>I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). 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charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Palantir: Buy This Software Company When The Price Is Right</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; 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overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nPalantir: Buy This Software Company When The Price Is Right\n</h2>\n\n<h4 class=\"meta\">\n\n\n2020-10-08 22:55 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4378163-palantir-buy-this-software-company-when-price-is-right><strong>D. H. Taylor</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>SummaryPalantir is a secretive software and consulting company that recently did a direct offering to the public.The company has a very high revenue increase rate with a high revenue run rate for this...</p>\n\n<a href=\"https://seekingalpha.com/article/4378163-palantir-buy-this-software-company-when-price-is-right\">Web Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","type":0,"thumbnail":"","relate_stocks":{"PLTR":"Palantir Technologies Inc."},"source_url":"https://seekingalpha.com/article/4378163-palantir-buy-this-software-company-when-price-is-right","is_english":true,"share_image_url":"https://static.laohu8.com/5a36db9d73b4222bc376d24ccc48c8a4","article_id":"2073784604","content_text":"SummaryPalantir is a secretive software and consulting company that recently did a direct offering to the public.The company has a very high revenue increase rate with a high revenue run rate for this year but is still unprofitable.Is the company's services and products scalable to become more easily profitable after the initial \"acquisition\" of a new customer?Palantir (NYSE: PLTR), the super-secretive software and services company, went public on June 30. The company works with governments and enterprises, aggregating and organizing massive stored data and transforming this into usable information for decision making. Its motto is to create a “Generalizable platform for modeling the world and making decisions”. The company’s sales are expanding and they expect a lot of future, continuous growth. The question is: Is Palantir a good investment right now? So far, the company’s stock has meandered slightly lower over the past few days since its offering. Prior to their public offering, they were believed to be worth some $20 - $25 billion. With the recent price discovery (the company’s stock hit a high of $11.21 but is currently trading at $9.11 at the time of this writing) the market capitalization is short of these numbers coming in at $15 billion: (5-Minute Bar Chart; Image Source: TradingView) Financial Discussion First thing to note about the company’s going public is that they did not do an IPO. Instead, Palantir did a direct offering to the public. Essentially, they are not raising capital; they are said to have some $2.5 billion on hand from an earlier private offering to another party in January (Source Notes: All data is derived from the 8-K Filings with the SEC for the company’s direct offering).\n With an IPO, a company is generally aligned with an investment bank that then sells shares to its own customers generating a lot of excitement. It may be that the lack of this initial offering buzz has failed to bring in the same pop in Palantir’s stock that, say, Snowflake (NYSE: SNOW) had just recently where their stock more than doubled on its IPO date. However, this may not have been a bad thing for Palantir as this may present itself as a buying opportunity for new investors today. Instead, the method of a direct offering was more of a way to afford current shareholders the opportunity to exit shares. According to Seeking Alpha’s data on the company, the average number of share being traded daily is ~90 million; there are approximately 1.7 billion outstanding shares. The company has revenue for 2018 and 2019 of $595 million and $742 million, respectively. Their current Revenue Run Rate for this year is approximately $962 million with recent revenue growth of 49% YoY and their gross margins are 55%. However, the company lost some ~$580 million last year. If the company hits their target of $962 million this year, I would like to see how profitable - or, unprofitable, they are - from this to determine more precisely the company's valuation. Palantir believes that only about 6,000 enterprises in the world would likely be a customer of theirs - these companies all generate some $500 million in revenue, or more. They believe that the Total Achievable Market (TAM) could be about $119 billion. For now, there is no real competition in this sector of the market, but, then again, there is. Companies such as Splunk (NASDAQ: SPLK), Tableau (NYSE: DATA) and Alteryx (NYSE :AYX) are in the sphere. The industry is fairly new so each respective company is still carving out their niche leaving a lot of opportunity for companies to establish themselves giving each company the opportunity to distance themselves from each other as being unique. Palantir believes that the potential $119 revenue would be approximately $56 billion from governments and another $63 billion from enterprises. The question I have, and cannot discern from the 8-K filing is: With that much potential TAM, where is the economies of scale for the company to become profitable? At what level, given the companies sales, do they start to achieve profitability and from that, with their Revenue Run Rate, when can this company be more properly valued?\n Palantir focuses on two main customers: Governments and enterprises. Their revenue is about equal for what they bring in from both government and enterprise, drawing in 47% from governments and the remaining 53% from enterprise. Here are some interesting facts about a new customer for Palantir. First, their strategy is simple: “Acquire, Expand and Scale” is their approach. When the company acquires a new customer, there is an expense by that company of approximately $100k. This acquisition takes approximately one full year; a partnership with this company is definitely a “long-game” partnership. Then, Palantir expands their services and offerings to this entity, be it government or enterprise. The average customer spends $5.6 million annually after that initial year. Basically, once an entity is acquired by Palantir, they are quite successful at the expand and scale execution. Scalability may be the key to this enterprise where investors need to focus mostly. This is where things get a little murky with Palantir in how to define this company. They are not necessarily a SaaS type company, per se, but more of a company that is part software and part consultant. Given that, what are the costs that Palantir has in its expansion and scaling? Again, this is not easily discernible from the 8-K filing and more information is needed to determine this. The company has a very high run rate and it will be interesting to look at these jumps in revenue to see the narrowing of their losses to get a better approximation of their profitability levels and time it will take. Conclusion: Palantir may very well be a buy at some point. However, the scalability issue is exactly that: It is an issue to be looking at to see when they are going to be profitable. With the average of $5.6 million being spent by customers, how many more customers will the company need to acquire in order for them to become profitable? Also, is their software a “cookie-cutter” type product where a new customer needs less and less inputs from Palantir? This is where calling Palantir simply a SaaS company would not be accurate and that looking at them as both software and consulting firm is more appropriate. Given that, scalability of consulting firms is more difficult than simply using software to manipulate a company’s data.\n I am neutral on this stock at this time; albeit, I think the movements lower in the stock price may continue for now. Once we see more data from the end of the year and can determine what increases in revenue translate into scalability and costs, then it may be more appropriate to consider investing in the company’s stock. I will look at this stock again after the new year.\nDisclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.","news_type":1},"isVote":1,"tweetType":1,"viewCount":143,"commentLimit":10,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"symbols":[],"verified":2,"subType":0,"readableState":1,"langContent":"EN","currentLanguage":"EN","warmUpFlag":false,"orderFlag":false,"shareable":true,"causeOfNotShareable":"","featuresForAnalytics":[],"commentAndTweetFlag":false,"upFlag":false,"length":44,"xxTargetLangEnum":"ORIG"},"commentList":[],"hasMoreComment":false,"orderType":2}