In the Portfolio Spotlight Series – i will be going through each holding in my portfolio and the selection criteria for its entry. Stocks are either
1. Great companies with consistent earnings, free cash flow, strong competitive moats. These are first team players
2. Potential growth companies with breakout earnings, growing competitive moats etc… these are hot youth prospects
3. Geographical / sector diversifications.. these are meant for diversification purpose and are reserves
The fifth and last in the Portfolio Spotlight series is Palantir (PLTR). Palantir is actually my second largest holding after Microsoft and I have strong conviction in this stock short to mid term. Palantir currently holds the position of hot youth prospect in my team. Palantir is an explosive growth company and such companies are measured differently because they are in a different phase of their company business life cycle. Palantir is in the growth phase currently characterized by strong inward investments and initial revenue streams.
1)Initial Consistent Revenue Growth
2)Exponential Market Cap and Revenue Multiple Growth
Palantir displays exponential growth in its market cap and revenue multiple consistently for the past 3 years and more. The key word here is again : exponential. This is the most important factor of investing in this company. It is displaying signs of strong competitive moat(s)!
3) Insider Holding/Buying
4) Institution Ownership
5) Future growth
This last factor is fundamental analysis. Does Palantir have future market growth driver(s) ? The answer is Yes! Palantir will continue to enjoy future market growth by
5a) leveraging on its strong competitive moat(s) :
Data Agnostic Product
The company is known for three projects in particular:
Palantir Gotham is used by counter-terrorism analysts at offices in the United States Intelligence Community (USIC) and United States Department of Defense.
Palantir Foundry is used by corporate clients such as Morgan Stanley, Merck KGaA, Airbus, and Fiat Chrysler Automobiles NV.
Metropolis and Foundry can both be leveraged on a common platform called Palantir Apollo. It is a continuous delivery system that manages and deploys Palantir Gotham and Foundry. Apollo was built out of the need for customers to use multiple public and private cloud platforms as part of their infrastructure. Apollo orchestrates updates to configurations and software in the Foundry and Gotham platforms using a micro-service architecture. This product allows Palantir to provide software as a service (SaaS) rather than to operate as a consulting company. SaaS is an example of a cloud service offering (think AWS or Microsoft Azure).
In summary, Palantir builds data fusion platforms for integrating, managing, and securing any kind of data, at massive scale. On top of these platforms, they layer applications for fully interactive, human-driven, machine-assisted analysis.
Sector Agnostic Customer Base
Palantir’s original clients were federal agencies of the USIC. It has since expanded its customer base to serve state and local governments, as well as private companies in the financial and healthcare industries.
Palantir’s clients as of 2013 included at least twelve groups within the U.S. government, including the CIA, DHS, NSA, FBI, CDC, the Marine Corps, the Air Force, Special Operations Command, West Point, the Joint Improvised-Threat Defeat Organization and Allies, the Recovery Accountability and Transparency Board and the National Center for Missing and Exploited Children. The U.S. spy agencies such as the CIA and FBI were linked for the first time with Palantir software, as their databases had previously been “siloed.” Most recently,
Palantir is one of four large technology firms to start working with the NHS on supporting COVID-19 efforts through the provision of software from Palantir Foundry and by April 2020 several countries have used Palantir technology to track and contain the contagion. Palantir also developed Tiberius, a software for vaccine allocation used in the United States.
In December 2020, Palantir was awarded a $44.4 million contract by the U.S. Food and Drug Administration, boosting its shares by about 21%.
The points above tells us that Palantir’s customer base is sector agnostic. There is no restriction of product sales due to sector boundaries.
The network effect is a phenomenon whereby increased numbers of people or participants improve the value of a good or service. The Internet is an example of the network effect. Initially, there were few users on the Internet since it was of little value to anyone outside of the military and some research scientists.
However, as more users gained access to the Internet, they produced more content, information, and services. The development and improvement of websites attracted more users to connect and do business with each other. As the Internet experienced increases in traffic, it offered more value, leading to a network effect.
The more and longer customers use Palantir products, the stronger will be the network effect and the harder it is for customers to stop using them.
5b) Potential B-2-C product offerings (Business to Consumer)
Palantir’s product lines so far are all B-2-B (Business to Business). Imagine what would be the revenue if it starts rolling out products to consumers directly !