Palantir Technologies Inc – Operating with a strong balance sheet

Palantir Technologies Inc (NYSE: PLTR) is the technology company developing enterprise data platforms used by public, private and government.

On 16 February 2021, the Company will release its fourth-quarter 2020 earnings.

Rationale for Valuation – Hold at USD 32.05

• With strong visibility into future revenue and the business's continued acceleration, the Company has raised its full-year 2020 revenue and adjusted operating income guidance.
• It continues to have a strong balance sheet.
• On the liquidity front, the current ratio was 2.54x in September 2020, which was higher than the industry median. Also, the liquidity position stays strong, with the confidence to increase the investment for the future.
• The company's debt/equity ratio in the last period was considerably below the industry median. In September 2020, the debt/equity ratio was 0.16x.
• From the technical standpoint, shares were trading well above the short-term support level of 20-day (around USD 30.01) simple moving average price, which reflects an uptrend in the stock.

Key Risks

• Any downtime experienced at the data centre will impact the Company's services, and it could result in the loss of customer and reputation.
• The IT market’s remain highly competitive, and new players with differentiated products enter the market often, and if the Company is not able to provide similar services at a competitive price, it could lose business.

Recent News

On 28 January 2021, the Company has signed an enterprise agreement with Rio Tinto, for its Foundry Platform.

On 21 January 2021, the Company has appointed Lauren Friedman Stat, as the Board of Directors and Audit Committee of the Board.

On 19 January 2021, the Company stated that it is providing California’s largest investor-owned utility with technology to support streamline data management, which improves its asset management and electric operations. This will also be enhanced electric system safety and reliability of the electric grid in Cal California.

On 13 January 2021, Palantir has selected to deliver a prototype for the first phase of the Army’s Ground Station modernization under the Army’s TITAN (Tactical Intelligence Targeting Access Node) program.

Q3 FY20 Trading Update (as on 12 November 2020)

(Source: Company Website)

• In Q3 FY20, the Company generated revenue of USD 289.4 million, representing an increase of 52% from Q3 FY19. The growth was driven by an increase in demand for its software in the United States.
• During the period, the Company had reported a loss from operations of USD 847.8 million, including an expense of USD 847 million as stock-based compensation for the recent listing.
• In the first nine months of 2020, the average revenue generated per customer stood at USD 5.8 million, an increase of 38% from the same period the year before.
• Regarding the financial position, the Company had cash and cash equivalents of USD 1.8 billion as of 30 September 2020.
• The Company had closed fifteen deals, with a worth of more than USD 5 million during Q3 FY20.

Three Months Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: EV/Sales Approach (NTM) (Illustrative)

Conclusion

The Company had forecasted its FY20 revenue to grow by 44% to USD 1.072 billion while its Q4 revenue will increase by 30%-31% to USD 299-301 million. In FY20, the Company expects the adjusted operating income to be USD 130-136 million while its Q4 adjusted operating income will be in the range of USD 44-50 million. Further, it expects that year-over-year 2021 revenue growth will be greater than 30%. During the period (Q3 FY20), the Company had signed several contracts, including U.S. Army Research Laboratory and National Center for Advancing Transactional Sciences. Therefore, it is well-positioned for strong progress and delivers enhanced shareholder value with a renewed focus on costs and efficiency. The stock made a 52-week low and high of USD 8.90 and USD 45.00, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on Palantir Technologies Inc at the closing price of USD 32.05 (as on 4 February 2021) and will recommend fresh buying at the right time.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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