Could Palantir Be Valued At $30 Billion?

by Trefis Team
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Palantir, the big data and analytics software company founded by Peter Thiel, filed a confidential form S-1 with the SEC and is expected to go public sometime this Fall. While Palantir’s tools are used by governments and intelligence agencies worldwide for surveillance, national security, and other purposes, the company has been expanding its presence in the commercial space. Based on available data on Palantir’s revenues and margins published by TechCrunch [1] and comparisons with other high-growth analytics companies such as Splunk (NASDAQ: SPLK) and Datadog (NASDAQ: DDOG), we think that Palantir could be valued at as much as $30 billion. See our interactive analysis Palantir Worth $30 Billion? for more details.  You can also modify key inputs to arrive at your own valuation estimates for Palantir.

Palantir’s Financial Performance So Far

  • Revenues grew by about 24% from $590 million in 2018 to $740 in 2019.
  • Year-over-year Revenue growth picked up to 49% in H1 2020. Assuming that the company’s Revenues are higher over the second half when government contracts are finalized [2], we think it’s likely that 2020 growth could stand at 60%, taking Total Revenue to about $1.2 billion.
  • While it’s not clear what is driving the higher growth, it’s possibly related to Coronavirus monitoring tools that the company has been providing to the Centers for Disease Control and Prevention and others.
  • Coming to the bottom line, Palantir remains deeply loss-making, largely due to high Sales & Marketing costs (about $450 million in 2019) with Net Margins (Revenue less all expenses, interest, and taxes as a percentage of Revenue) standing at -78% in 2019.
  • However, Margins could improve considerably this year, as Revenue growth picks up and expenses are kept in check.

Comparing Palantir’s Growth With Datadog and Splunk

  • Palantir’s annual Revenue growth between 2018-2020E is likely to stand at about 41%.
  • Splunk, another big data and analytics provider, grew Revenue at 36% annually between FY’17-FY’20
  • DataDog, a software as a service company that provides tools to monitor cloud-scale applications, should see revenue grow 78% annually between 2017 and 2020.

Comparing Palantir’s Net Margins With DataDog and Splunk

  • Palantir remains deeply loss-making, with Net Margins standing at -78% in 2019 although the number should improve considerably this year.
  • In comparison, Splunk’s Net Margins stood at -14% during its most recent fiscal year, while Datadog’s margins were still better at about -5%.

Estimating A P/S Multiple For Palantir Based On DataDog and Splunk’s Valuation

  • Datadog is valued at about 46x projected Revenue, given its high growth rate and lower level of losses.
  • Splunk is valued at a more modest 13x projected 2021 Revenues, as growth is likely to cool over the next two years.
  • We think it’s likely that Palantir could be valued at about 25x Revenues, ahead of Splunk, considering that growth should pick up over 2020.
  • However, the company’s high-levels of Revenue concentration (top 20 customers accounted for 67% Revenue) and its heavy dependence on government contracts (54% of total Revenue in H1 2020) could make it riskier compared to other SaaS players that have a wider customer base.

Arriving At Palantir’s Valuation

  • We think that Palantir could be valued at close to $30 billion, assuming a 25x Revenue multiple and $1.2 billion in potential Revenue for 2020.
  • For perspective, the company was valued at about $20 billion privately by investors in 2015 according to Bloomberg. Considering the recent growth and the fact that software companies are in favor with investors at the moment, a $30 billion valuation doesn’t look far fetched, in our view.

Interested in the Software As A Service space, but concerned about the high valuations? Check out our theme on High Growth Software Stocks At A Fair Price for software stocks that offer growth at a reasonable price.

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Notes:
  1. Leaked S-1 screenshots show Palantir losing $579M in 2019, TechCrunch, August 2020 []
  2. Palantir Reports Losses, Adds Lockup Period Ahead of Listing, Bloomberg, August 2020 []
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