One of the main criticisms thrown at big data specialist Palantir (PLTR) is that its clients are just, well, too big. That is, the company’s business model is based on having only a few massive organizations, mostly government bodies at that, which account for the majority of the company’s revenue.
The data bears this out. As Jefferies’ Brent Thill notes, with government revenue growth in CY20 and CY19 up by 77% and 35% year-over-year, respectfully, compared to overall growth of 47% and 25%, government has been the “primary growth driver historically.” Therefore, with a heavy reliance on just a few marquee clients, should one decide to take its business elsewhere, the impact will be more pronounced compared to a company with more evenly spread revenue generating options.
However, Palantir bulls will point to the fact the company is actively looking to “broaden its customer base.” Thill notes that recent times have seen the company have success in “landing new commercial logos.” The analyst estimates that as of 4Q20, Palantir had 51 commercial customers in its base and year-to-date has added 31 new logos – amounting to 61% growth.
The bears have a counter argument and claim the company’s newly launched strategic investment program, known as ‘Foundry for Builders’, is not much more than an attempt to “buy revenue.” The program looks for early-stage companies who will receive direct investments from Palantir – via cash from the balance sheet – and in exchange, these targets sign “multi-year deals” with Palantir.
So, where does Thill position himself here? The analyst is keeping an eye on the program’s development and admits government business carries most of the weight at present.
“That said,” the 5-star analyst added, “We do believe that PLTR’s commercial initiatives aim to bring its platform to the mass market and that this will take years (not quarters) to execute. If successful, we believe sustained commercial rev growth could dramatically change the investor narrative for the better as PLTR works toward $4B in CY25 revs.”
To this end, Thill maintains a Buy rating on PLTR shares, backed by a $31 price target. The implication for investors? Upside of ~21%. (To watch Thill’s track record, click here)
Thill, however, is currently the Street’s lone Palantir bull; with 3 additional Sells and 2 Holds, the stock has a Moderate Sell consensus rating. Furthermore, the $24 average price target implies the share price will decline by ~6% over the coming months. (See PLTR stock analysis on TipRanks)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.