Reddit’s Wallstreetbets loves Palantir Technologies, a Denver-based maker of data analytics software. The merry band of traders mention it more than any other stock, but the company has serious problems.

Big Losses

Palantir claims to make products that analyze data better than anyone else. If that’s true, why has the company never made a profit in 18 years?

“They’re massively unprofitable and they’ve never been able to figure it out,” [NYU Business Professor Scott] Galloway said, noting that it took Google three years to earn a profit, and Amazon seven.

Defense News

Revenue is increasing but losses are increasing much faster, as sales/marketing and general/administrative expenses explode. I don’t see how signing a few more government contracts is going to get them out of this.

In fact, Palantir spends more on sales and marketing than it does on R&D, per their latest quarterly report. This seems strange for a company whose whole value proposition is some technical “secret sauce”. Its sales and marketing expenses are massive, over half a billion dollars in just 9 months. Where is all this money going?

One clue from their latest quarterly filing:

we typically acquire new opportunities with minimal risk to our customers through short-term pilot deployments of our software platforms at no or low cost to them.

They provide costly free trials to customers, and that seems to be killing their financial results. But if that’s what customers are used to, can they move to another, more profitable model? That could be particularly difficult for a company that’s dependent on winning more and more business from the same group of customers. They’ve probably come to expect their free trial.

Dependent on Fundraising

Palantir claims to be a data analytics company but acts more like a fundraising machine. It has lost $3.8 billion and raised $3 billion, cumulatively. It’s also taken on debt to stem the bleeding.

You see this pattern very clearly in their 2020 report. They lose $1 billion in cash, issue $900 million in stock, and pile on $200 million in debt for good measure.

They have under $2 billion in the bank now and lost $1 billion in 9 months. Without new fundraising, that gives them 18 months until they’re broke. Maybe they can easily raise more funds. Maybe they can’t. Either way, a mature company should not be in such a precarious position.

I’m harping on the losses because this is not a new company beginning to build technologies and starting to scale. This is a mature business. It should be making money by now. Amazon and Google were well known for accepting some losses early in order to build and scale their business, but were still able to make a profit in just a few years.

What, Me Worry?

Another major risk is that their business is heavily concentrated in a few big government clients. If they lose one of those contracts, they could be in big trouble:

three clients — which Palantir did not name — accounted for almost a third of revenues.

Defense News

CEO Alex Karp doesn’t seem concerned, though. Maybe he’s too busy enjoying his $600,000 travel stipend to go…where exactly?

For more content on the Wallstreetbets phenomenon, try some of these:

• There Could Be Another GameStop Short Squeeze, But Beware Weak Fundamentals
• Big Loans at Almost No Interest for Sundial Insiders Are a Rip Off For Shareholders
• Reddit’s Favorite Stock Is Losing a Fortune And May Be Headed for Bankruptcy

If you found this post interesting, please share it on Twitter/LinkedIn/email using the buttons below. This helps more people find the blog! And please leave a comment at the bottom of the page letting me know what you think and what other information you’re interested in!

Photo: Palantir co-founder Peter Thiel. “Peter Thiel” by jdlasica is licensed under CC BY 2.0