RBC On Palantir:
Investor Perception:
RBC Main Concerns With Palantir:
Palantir’s VP Responds:
RBC On Palantir:
Within a recent initiation note by RBC, the firm stated that they “remain unconvinced on Palantir’s commercial success”. The firm mention how, “we see Palantir as an increasingly difficult short following our conversations with investors. We acknowledge that Palantir could see near-term boosts in the government business from elevated defence spending given the ongoing geopolitical tensions”.
Interestingly, RBC mentions that any near term Governmental success could be short term contracts related to the geopolitical tensions. RBC mentions that this will be similar to what occurred during COVID.
In regards to the recessionary period ahead, RBC note that “investors are also evaluating companies’ general sensitivity to a potential recession.” This shows how investors are investigating the potential of a recession, and how this would impact software companies. Furthermore, RBC state that this is where mission-critically becomes especially relevant, as we believe discretionary line items would be the first to get cut and pushed into the background.
In terms of earnings reports, and what investors can expect in the future, RBC states how MSFT, NOW & TEAM are likely to set the stage for the next up-coming earnings reports. “We believe investors are looking forward to the first round of earnings reports from MSFT, NOW & TEAM in order to gain colour on the top-of-mind macroeconomic concerns.” RBC states how, “we expect these bellwether software earning events to likely set the tone for the rest of this software earnings season”.
Investor Perception:
In terms of inevitability, investors are looking to hide within high quality, profitable growth companies, in which are deemed as safe heavens says RBC.
Overall, due to the current macroeconomic environment, it seems that the current investor perception is very bearish for software companies in general.
This comes after Alex Karp hit back at analysts who called Palantir a consulting firm. Back last year, Morgan Stanley analysts stated that “Palantir is priced for perfection, but key debates remained unresolved”. The analysts go on to mention how, “we saw a unique combination of revenue growth acceleration and rapid margin expansion undervalued by the market due to outstanding investor debates, most notably around whether Palantir was a true software company, or a less desirable consulting firm”.
When the report was released, the analysts at Morgan Stanley stated how, there are still “investor questions [which] remain largely unanswered”.
The analysts stated how, Palantir experiences an unattractive risk & reward, especially at a valuation of 33X CY22E sales.
Dr Karp said that this report was utterly idiotic within a recent interview.
RBC Main Concerns With Palantir:
Firstly, the revenue from SPAC investments and agreements could take time to prove unsustainable. “We see upside risk potential if SPACs are able to meet or exceed commitment levels and sustain Palantir’s top-line growth”. RBC are specifically upset with the commercial acceleration being very unsustainable for Palantir given the agreements with SPACs. RBC wants to see more organic growth within the commercial sector specifically. Interestingly RBC did not that Palantir could make their commercial products available to more customers over time, in which therefore would enable a more suitable suit to a broader set of customers.
RBC are not confident in regards to the long term 30% growth guidance. Management state that Palantir will achieve 30% growth throughout 2025, which RBC “finds difficult to underwrite given the deceleration in Government and commercial (EX-SPAC related revenue).
To add, RBC says how Palantir experiences GOV deceleration in which is concerning. This is because, “this is the strongest part of the business, however revenue growth has decelerated more than expected” within the Government recently for Palantir.
To add, RBC says how “we estimate government deal value growth was modest. To us, this signals COVID related tailwinds have faded”.
Palantir’s VP Responds:
At Palantir, we are focused on growth of our customers, said Josh Harris. Regardless of the stock price, we are focused on delivering. Palantir is helping customers and we are focused on reducing costs, becoming more efficient and getting more efficient over time, Josh Harris said.
Due to the supply chains, and issues within society, Palantir’s VP stated that “companies are turning towards technological solutions”, and data solutions to understand “what we are doing” as a company.
People & companies are looking at technology as an opportunity, said Josh Harris.
Palantir’s VP said that “we partner very closely with AWS”, and we do not view them as competitors, we view them as competitors.
Companies are becoming smarter in terms of what they are spending on. Organisations are doubling down, because they are seeing the returns. This is especially relevant within a time in which efficiencies is key.
Cathie Wood, the CEO of ARK Invest states how, “during tough times, innovation gains traction”.
For example during COVID, there were some major catalysts in which prevailed innovation to succeed. For Palantir, it seems to be that these COVID catalysts have benefitted the company longer term, instead of solely being “one-off” contracts.
Piper Sandler interestingly mention that, COVID was a major catalyst for Palantir, and this is going to have “long-term benefits”. Piper Sandler however state that, due to the COVID catalyst, this has majorly benefitted Palantir across the Government. This perhaps relates to Palantir’s stickiness as a software solution.
