Palantir Q3 24– Icarus Ascending

There is no fundamental support here.

• Another set of good results drove Palantir shares to new highs, but this was not the sort of blow-out that Nvidia has been reporting and with the shares 3x as expensive and rampant dilution, one is not getting much for one’s money.
• Q3 24 revenues / GAAP EPS were $726m (up 30% YoY) / $0.06 ahead of estimates of $703m / $0.05 and went on to raise guidance for FY 2024.
• 2024 revenues are expected to be $2.805bn – $2.809bn a range of just 0.1% from top to bottom meaning that Palantir already knows exactly what Q4 24 will look like.
• The current consensus is 2024 revenue of $2.76bn making this a beat of 1.7% which in my opinion is not meaningful in any way.
• Palantir’s business remains very US-centric with US commercial growing by 54% YoY and US revenues by 44% overall.
• However, this means that the rest of the world is doing very little where revenues expanded by just 7% YoY to $226m in Q3 24.
• Foreign revenues have been a problem for a while and some time ago, Palantir decided to pull back its investments and focus most of its efforts on the US.
• This is clearly going extremely well but the US is just 1/5^th of the global economy and Palantir will need to come back to this at some stage if it wants to keep the engine of growth going.
• Given that its previous efforts failed to yield results, success the second time around is not a given.
• Q3 24 also saw more share dilution with the diluted share count now standing at 2460m shares in issue up 1.8% QoQ and 5.8% YoY which I continue to think is a huge problem for shareholders.
• This is because shareholders are being diluted faster than earnings estimates are going up meaning that an objective and numerical-based valuation of this company is still falling.
• For example, earlier this year after a great quarter where expectations were slightly raised, my valuation of the company fell from $15 per share to $12.
• There is every sign that dilution is going to continue as the company is just not raising its estimates fast enough to justify the increase in the share price that has been seen.
• The shares jumped by 14% in after-hours trading meaning that the company is now valued at $115.6bn.
• This leaves the company trading on more than 100x EV/EBIT which is absurd even for a company as great as this one is.
• Palantir’s position remains intact in that it has no real competition, and its products are so good that companies who decline to purchase the software do so for fear of becoming dependent on them.
• It was also one of the first to come up with a product for managing and running LLMs in a secure and controlled environment and so is catching part of the generative AI craze.
• The problem is that the revenue base is not nearly big enough to justify the valuation and if I was still holding the shares, I would sell them immediately.
• The case for Palantir shares at $6 (when I bought them) was fantastic which became indifference at $15 and dislike at $20 (when I sold them).
• What has happened since is pure narrative as the numbers have not moved that much in terms of performance relative to expectations, meaning that when the narrative runs out of steam, the shares could easily crater by 50% or more.
• I missed a double by selling early but remain perfectly happy to have moved on to better-valued territory.