$PLTR (sell)

Sell

-

Failure

February 1, 2022

Mike Penna

Sell PLTR at a 50% loss due to further downside and poor Q3 results

Overview of Palantir Technologies

Company Overview: Palantir Technologies, Inc. develops software to analyze information. The company offers solutions to support many kinds of data including structured, unstructured,relational, temporal, and geospatial.

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Revenue Overview: Of the $1.1B in revenue generated in 2020, 56% came from customers in the government segment (Gotham). The remaining 46% comes from the commercial segment(Foundry).

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Software Platforms: Palantir Gotham, and Palantir Foundry, which are vertically integrated.

Gotham used for analysts and defense and intelligence agencies.
Foundry is used for managing data in large commercial projects.

Product Aim: Palantir’s software enables their customers to transform massive amounts of information into knowledge that reflects their world.

Building flexible applications on this data asset allows the data to be made accessible and understandable to the people who need it.

Financial Analysis

3rd Quarter Synopsis

Investment Thesis: Although Palantir has strong technology platforms, mission-critical applications, and a robust demand for AI/Analytics, Palantir has shown various concerns including pricing sustainability, down-market penetration, and the inability to pin down the long-term economics of the business.

Additionally, high equity dilution will depreciate the stock price significantly.

Gross Margins continue to compress:

Contribution margins declined
LT profitability concerns

Palantir reported below-expectation 3Q Results:

Government Business decelerating significantly ( +34% YoY from 66% in Q2)
Commercial Segment decelerated to 23% (excluding related party revenue)

Higher Revenues, Promising Idea, Why Sell?

Fundamental Problems: Since Revenue has been decelerating, margins will experience continued pressure, from both systemic and systematic sources.

Projected to be unprofitable for next 3 years.

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Risks

Commercial Opportunity is likely smaller than most appreciate:

Palantir is not a replacement for the infrastructure that comprises the bulk of commercial spending (databases, data warehouses, etc.).
Instead, it sits on top of and in-between other systems.

Continued Share Issuance will dilute the share price heavily:

Management of Palantir is mainly comped through equity, and with more shares being exercised via comp, share price will decompress.

Macroeconomic Risks of Investing in Speculative Tech:

Low rates and high liquidity enticed investors to pile into “Risk-On” Assets and invest more into IPOs given the COVID-19 WFH expectation.
This reality has faded, along with rates rising, which has created an exit for tech.
Expected rate increases from the fed is lowering the NPV of CF for these tech companies with no hedges.

Recommendation

We are currently down 50.41% on Palantir.

Our position costed $8,058.00 , or 300 shares at $26.86.

Palantir is the 2nd heaviest weighting in the tech sector of our portfolio.

To be able to breakeven on our position, Palantir must soar 108.2% = SELL

NOT INVESTMENT ADVICE

At the time of writing, I (Michael Penna)have no holdings in Palantir Holdings, Inc (PLTR) or related subsidiaries.

This material is not intended as are commendation, offer, or solicitation for the purchase or sale of any security or investment strategy. It considers only the investment objectives of Etico Partners Financial Advisors, Planner, and Portfolio managers. Michael Pennadoes not offer any brokerage, investment advisory, or other financial services to our members orother outside entities.

This material is not an official research report of Etico Wealth Management or any of its partners or subsidiaries.

Michael Penna does not provide investment, legal, tax, or accounting advice. Readers of this document should consult their financial, legal, and/or tax advisors before making any financialdecisions.

Investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results.

All financial and investment related decisions must be considered in the context of an individual investor’s goals,time horizon, liquidity needs, and risk tolerance. Not all investments will bein the best interest of all investors. Asset allocation, diversification, and rebalancing do not ensure a profit or protect against loss.

Investments have varying degrees of risk. Risks involved with equity securities include the prospect that the value ofthe stocks may fluctuate in response to specific events to the companies andmarkets, as well as economic, political, or social events both domestic and international. Foreign securities can involve special risks, including foreign currency risk and the risk of adverse global political, social, or economic environments. Risks are increased for investments made in emerging markets.There may be risk from lack of diversification through concentration inparticular sectors and industries. Investments in commodities include risks ofmarket price fluctuations, regulatory changes, interest rate changes, credit risk, economic changes and other political or financial factors. Fixed-income securities may still involve certain risks, consisting of the credit quality of individual issuers, possible prepayments, economic developments, and yields fluctuations due to changes in interest rates.

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