Follow The Money
In an interview with CNBC’s Andrew Ross Sorkin, the CEO of Palantir (PLTR) Alex Karp pitched us why America should view his company Palantir as a force for global good and why investors should invest in this company.
I wasn’t convinced after hearing his answer, and the dead giveaway was his avoidance of the question about why he continues to dilute the volume of shares in the software company.
On the revenue side of things, it’s been quite good, with the software business exploding in revenue from $560 million in 2018 to annual revenue of $1.54 billion in 2021.
His tech company overwhelmingly benefits from geopolitical catastrophes like kinetic wars ,which is why the military conflict in Eastern Europe is so lucrative for Palantir.
In the interview, he hyped his software as the great equalizer to Russia’s army, claiming that the reason a “small” country can fight toe to toe with Russia is with the help of the Palantir software.
That claim was a bit of a stretch, but why not use the global stage to hype up one's product and abilities?
Karp also took a victory lap on the brutal governmental lockdowns of 2020 and 2021 around the world, saying his company “saved millions of lives” by integrating Palantir with government services.
Basically, if the world is trending badly and the worse the better for the tech firm to the point of mass violence and anarchy, his company will ride those coattails to profits.
Yet the stock price has swan dived from $40 to $7.
You read that correctly.
Part of the problem of Karp’s software company is clearly the economic and financial backdrop that has forced interest rates higher and caused rampant inflation. I won’t discount that.
But the more important excuse for the appalling stock performance is because of Karp aggressively diluting shares.
The number of shares has increased by around 200% since the 2020 IPO and many of those shares have gone to upper management.
Karp and his friends have a habit of cashing out these diluted shares because they are still worth hundreds of millions even after the dilution, and Karp is still owed newly minted shares each year for around the next 10 years.
Sounds like a bad deal for the incremental investor.
In short, Palantir has served as the personal piggy bank for Alex Karp and his executive management team.
Instead of rewarding the shareholders, he has milked the company for profits while pouncing on public money to fund his software company.
In almost every interview I have seen him participate in, he doesn’t miss a chance to bash the Silicon Valley establishment either and almost calls them un-American.
Although he is highly forthright about his responsibility to be an American-first company, his shunning of external investors is why every reader should avoid this company.
If you invest hard-earned money into this firm, your money will be cashed out by Karp like his personal ATM.
It’s like an annual procession – rinse and repeat.
He’s just waiting until the end of 2023 for his new tranche of diluted shares to hit his account, and then he will sell them on the open market and withdrawal more fiat dollars.
Aside from the stock dilution circus, the company is actually quite solid with a competitive moat around its proprietary software.
The one negative I can think of is the lack of profitability with the firm losing half a billion dollars last year.
However, the company is growing too fast so that super growth justifies the loss-making.
Karp needs to stop running the company only for the purpose of his personal bank account and PLTR’s shares will never go up until he accommodates outside shareholders.
This is a $7 today, but because of Karp’s financial mismanagement of PLTR, it should be a $25-$30.
Until there is proof that Karp has changed strategies and incorporates a vision of prioritizing shareholder returns, readers will need to look elsewhere to make money in the tech sector.
