Palantir’s Quiet Period ends…and today I take a look at how the company’s been
trading since going public, what the analysts are predicting and I share my own thoughts
as to what factors I think are, and will drive the stock price. Stay tuned!
Welcome to Healthy, Wealthy, and Wise, the channel that has evolved to talk about all
the big, and not-so big companies going public, whether it’s by a traditional IPO, a SPAC
or even a direct listing. Today we’re revisiting Palantir (PLTR), a company that we talked
a lot about last month as they finally made the move to go public after about 17 years
of being private. But before we start, I want to say a big thank you to all of the subscribers
who have stuck with me as we continue to grow this channel together. And for anyone new
here, my name is Kevin and I want to welcome you to the channel for the first time. If
you end up liking the video, I hope you consider joining our community by subscribing, after
all it’s free, and it’ll make sure you don't miss any information on the company
that could turn into the next big thing. And as always, especially on a video like
this, please know that I’m not a financial advisor, and while my videos are meant to
be informative, they should not be seen as a recommendation for you to take any action
on the companies covered—you should always do your own research or consult with your
own financial advisor when making any investment decision.
With that said, we talked a lot about Palantir last month, so if you’re looking for information
on the background of the company and details of its direct listing filing, we’re not
going to rehash that here today, but you can check out a playlist of videos I made that
has all of that information; I’ll link it for you in the description.
Today, let’s start off talking about where it’s traded since its debut and why I think
it’s trading there. First of all, a lot of people got caught up on the reference point
that Palantir cited as $7.25 and noted how much higher Palantir traded once it opened.
As I believe I said on the livestream that we had after the first day of trading, that
reference price didn’t mean anything to me. Unlike a traditional IPO where we know
the institutional investors set an IPO price, which is what they actually pay for each share,
with a direct listing, there is no institutional investors or banks pricing the shares. So
right off the bat, that price didn’t have any substance behind it, again, because no
underwriters actually set that number or bought shares at that price. Now the week before
the trading began, there was a lot of speculation that it could have traded at $11.50, the highest
price that it traded at on the private markets in August. However, that price in August was
hit only after word was out that the company was actually going public. Prior to that news,
the private shares were trading at a volume-weighted average price of $5.34 in July. And then in
August, the month where the filing went public, the average price jumped to $7.31, although
it had traded as low as $4.17 in that same month, which was a low for 2020. So even when
you consider the bump that going public will do for the share price, going up to $11.50
seemed high and would set up the direct listing for being deemed a disappointment. By moving
the price down to $7.25, the company almost assured a positive response, because again,
considering where it traded privately, and even adding a bump for it going public, there
was no doubt it could beat that reference price, and there would be no negative repercussion
by setting the price low because, no one was actually buy shares at that price, like what
would actually happen in a traditional IPO where you could leave money on the table with
a low price being set. So why is this important? Because, as I also
said in the livestream after Day 1, I felt where the stock actually traded was in the
ballpark of where it probably should. And Palantir got a lot of positive publicity for
blowing past the reference price. I remember getting a question on if it was overpriced
at that time, and I remember saying that it could be priced a little high, but that I
really felt it was definitely in a range I would be comfortable with, unlike some IPOs
such as Snowflakes’s where I just couldn’t justify the price it was at after its first
day of trading. Now after Palantir opened at $10 and spiked to just over $11 on that
first day, the stock has settled in a trading range between between $9 and $10 since...and
I know that a lot people’s expectations would be that the stock would trade higher.
So we’re going to talk about that in a minute. But first I want to mention that today was
the end of Palantir’s quiet period, and I think what you saw today is one of the reasons
that I cover them in our weekly IPO This Week episodes. In a day where the entire market
was under pressure, Palantir was able to weather the storm and end with a 5% gain, powered
on the new market research released by analysts. Knowing a company’s quiet period can help
you trade the stock better, if only in the short term. I’m going to give you a lot
of things to look for when it comes to evaluating Palantir’s share price so hang in there
with me, but I did want to tell you that today, there were at least 5 analysts that came out
with price targets, 1 at $10, 2 at $11 and 2 at $13. When you add up the targets and
average them out, you get an average target at $11.60 from people who are actually paid
to make these predictions. So while on the surface, the targets don’t look super attractive,
after you look at the closing share price last Friday before the analysts targets came
out, you see an expected rise or upside in the stock price by 22%.
Now if you listen to a lot of fans of Palantir who write and make videos about them, they’re
expecting the price to get to the upper teens or to the mid-20 dollar range relatively soon.
And some even say much higher than that. Now as I always say, I can’t see the future
and so my predictions are no better than anyone else’s. But based on what I know about the
company and the environment that we’re in, I would be really surprised to see the stock
jump into the 20 dollar range in the near future, and not because the analysts have
price targets that are lower than that, but because of a lot of underlying factors that
I’ve considered. So to finish up the video, I’m going to go over the factors that I
see that impacting the company, and by how much, when it comes to where the stock is
trading and where it can go. First I’ll tell you the things that, in
my opinion, won’t significantly impact the price. Beginning with probably the biggest
issue that kept coming up before the direct listing was the company governance structure.
While there’s no question that the structure is not friendly to shareholder power or that
the owners can sell shares and still keep significant control…which is somewhat appalling…I
just don’t see this being a factor for most of us retail investors. I know I have a lot
of interest and personal experience in the stock market, and yet I don’t think I’m
so smart that I have a better grasp on how to change the company in a way that grows
it better than the founders. So I’m gonna knock corporate governance from being a major
factor in the price right off the bat. The second factor I think is over-rated in
influencing share price is the uncertainty over the result of the election. And as many
of you know, we don’t talk politics on here, but from a pricing consideration, it is a
factor due to two popular perceptions, one is that companies that contract with the government
in national defense do better with Republican administrations, and two, that the markets
do better overall when there is a Republican president. To the second point, data consistently
shows that which party holds the White House doesn’t have any major bearing on the markets,
and historically, even though Republicans are considered more friendly to business,
the markets have actually performed higher during the years that the President is a Democrat.
At the end of the day, so many more factors affect the markets in general, I just discount
the impact of which party controls the White House. And to the first point about companies
doing business with the government in areas of national security, I don’t think a data
analytics company is at risk for a huge cut from a Biden administration. As I’ve said
before, could their work with ICE be impacted, yes, but it could also just change in what
they’re tasked to do in regards to immigration. But business could also pick up with analyzing
and tracking virus data in the current pandemic environment. And Palantir was still very much
doing business with the government in the Obama-Biden years, with reports of them assisting
in finding Bin Laden, as well as uncovering fraud. And if you go with the perception that
Democrats spend more, I just don’t see a company that has proven to be helpful to the
government as one that would significantly be affected by a change in the administration.
Do I think that some people might be concerned with investing in Palantir because of the
election? I do. But again, in my opinion, I just don’t see this being a major factor
long term, either way, on who wins the White House.
Now let’s get to some factors that hold more weight for me. One is financials. At
the end of the day, the financials will ALMOST always supersede everything else. There are
two big numbers to look at. One is that the company is expecting to reach revenue of over
1 billion dollars for the fiscal year. And the company looks to be on track, or at least
close. For the first 6 months of the year, revenue was coming in at over 481 million
dollars and for the trailing 12 month period, revenue is coming in at just over 900 million
dollars. Hitting that billion dollar number has to happen for Palantir and it looks like
it will. The other issue, and maybe the bigger one is to see if they can start cutting their
net losses down. Remember, the company has been around for 17 years without ever having
shown a profit, and I also see that sentiment weighing on where the stock is trading. But
this also looks to be on track when looking at net losses from continuing operations;
for fiscal year 2019, the company reported a loss of 580 million dollars. For the trailing
12 month period, the company is showing a loss down to just over 460 million dollars,
and even better, for the first half of the year, the net loss was down to just under
165 million dollars. So the financials are trending positive, but still the price is
where it’s at. So in this case, financials aren’t superseding all, so I have to ask
what else could investors be looking for to drive the price up?
One of those things, I believe, is concerns over their customer base. From their filing,
they reported to having just 125 total customers, with revenue highly dependent on 3 of them,
with those 3 customers representing almost a third of the total revenue. Obviously, this
is a risk factor to the price if they were to lose one of those customers. I also know
what I would like to see is more growth on the commercial side. I like where they sit
on the government part of their business, but I really feel their opportunity is on
the commercial side and I’m looking to see more contracts obtained there; they really
need to show a growth in that customer base. So this is one thing that I think is holding
the price back. Moving up my list of what’s impacting the
price is concerns about the company’s valuation dropping over the years. In 2015, the company
was valued in the 20 billion range. This year, prior to the direct listing, the company was
valued at about half of that on the private markets when using the share prices we talked
about earlier in the video. The question I have asked myself is, even after having considered
how going public affects valuation, what have they done to deserve a much higher valuation
than where they were? And right now, I haven’t seen anything from them that does that. When
I consider what the private shares were trading for, and saw it spike to around $11 based
on its filing to go public come out, all of the information we’ve talked about was priced
in at that time as well. So while I think the current price is within a reasonable range,
to drive the price higher, I need to see more….more customers, beating revenue estimates and lowering
losses. That would help me feel comfortable in seeing that upside.
But what I feel is the biggest factor affecting the share price right now is the uniqueness
of what Palantir did with their direct listing. And that was locking up shares. While typical
for traditional IPOs, this is certainly not the norm for direct listings. As of right
now, 80% of the existing shares aren’t able to be traded. And while they followed the
lead of traditional IPOs on locking up shares, they diverted on the length of when those
lock ups usually expire. For IPOs, most expire at 180 days, however for Palantir, it will
be less than that, by approximately 2 months. For them, the shares will become available
on the third business day following the release of fiscal year 2020 earnings. And just so
you know, the fiscal year for Palantir ends on December 31st. So when this year’s earnings
come out a few weeks later, we could see more volatility in the share price when those 80%
of shares are finally able to hit the market. And with potentially a glut of shares hitting
the market as insiders who’ve been waiting to capture their gains from when they were
buying shares as low as $4.17 in August, to me this is the top consideration I have in
the near term for downside pressure on the share price.
So that’s what I got for you on Palantir, what do you think? Do you agree with my assessment
on the stock or not. Let me know in the comments what you think.
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