On the surface, Palantir Technologies (PLTR) is the kind of company that the market should love. They are a tech company in a trendy space, are growing revenue at a close to fifty percent clip, still have enormous growth potential and, although they don’t make a profit, they do have positive cash flow. And yet after falling back from an initial pop, the stock has been basically flat since February.
Immediately after the company went public via a direct listing a year ago, the stock fell. The opening price, which is set by the market rather than investment bankers in a direct listing, was $10, but it closed that first day at $9.50 and struggled to regain that $10 level for several weeks. Then, in November of last year, PLTR took on the “meme stock” mantle and tripled in less than a month. It jumped one more time in similar fashion a few months later to hit the high of $45 before halving from there and has been in the teens and twenties ever since.
There are several possible reasons for that disappointing performance.
The most obvious is that the spike from November to February was definitely overdone, and that would have scared some people off. Still, other meme stocks such as GameStop (GME) and AMC (AMC) also pulled back from their initial highs but settled at much higher levels than PLTR relative to their starting point.
Another thing that is often quoted as holding PLTR back is the seemingly somewhat cavalier attitude by management to profitability. They have been quite open about the fact that that is not a top priority at this point in the company’s trajectory, and it is often said that that attitude is scaring investors. That seems logical at first glance, but it just doesn’t hold up to closer scrutiny. These days, everyone is aware of stories like Amazon (AMZN) and Tesla (TSLA), companies that took their time focusing on profitability but, once they did, have turned into powerhouses.
Then there is the nature of Palantir’s business. They are a big data company, built on “software as a service,” which is a positive, but early on, they were focused on government contracting. Even though countless defense industry contractors have shown that to be a good thing in some circumstances, there was a worry that Palantir risked losing business as political winds shifted. That hasn’t happened to this point, though, and they are increasing their corporate business rapidly and now have a more balanced book of customers.
Clearly there is something else that is holding back PLTR given the massive potential of the business they are in. That thing is their image.
The whole idea of a company that collects vast amounts of data and then shares it with their customers is scary to a lot of people. The broadening of their customer base is a good thing, of course, and has made me bullish on the stock in the past, but it does create a problem. As now constituted, Palantir is hated by both sides of the political divide. They are the ultimate big tech boogeyman, providing data analytics software to government agencies and corporations. If you are on the right of American politics, the former is frightening, if on the left, the latter.
Either way, they are a company that is easy to hate. Providing the analytics that helped find Osama Bin Laden is great, but when people realize that that means the company is offering those services to the CIA, FBI, and other agencies to surveil everyone, it becomes a bit scary.
That perception problem isn’t made any better by its founders and senior management. Peter Thiel and Alex Karp are controversial figures, even by the standards of Silicon Valley. Both speak their mind loudly and often: a desirable trait in theory, but not appreciated by investors in reality. They, like the company itself, attract negative comments.
That is why, for me, the closest comparison for PLTR is TSLA. There too, a controversial, somewhat outspoken leader took center stage for a company whose business and mission were, not too long ago, seen as controversial. We all know how that turned out once Tesla started to fulfill its potential and began making money. I’m not saying that PLTR stock will take the same trajectory as TSLA, but simply that profits have a way of calming controversy among investors, and before too long, Palantir’s PR woes will fade away.
For investors in Palantir, the next few months will almost certainly be a bumpy road. There will be scary articles about the supposedly “shadowy” nature of the business, and others questioning whether they will ever make money. The stock could well stay disappointing for a while and may even drift lower, but, ultimately, they offer a product that is in demand in a market that is growing at an exponential rate, so I, for one will be buying on those dips, then forgetting about it and waiting for the day when it all comes together.
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