Palantir went public in September in a direct listing.
Michael Nagle/Bloomberg
Palantir Technologies has had an impressive early run in the public markets, direct-listing on the New York Stock Exchange in late September at $10 a share and rallying as high as $33.50 before recently settling into the mid-to-high $20s. But at least one analyst thinks the stock is heading for a far tougher year in 2021.
Citigroup’s Tyler Radke on Wednesday cut his rating on Palantir (ticker: PLTR) to Sell from Neutral, while lifting his price target to $15 from $10. He thinks that after the huge rally since its direct listing, the stock is vulnerable heading into 2021 given a coming lockup expiration and likely growth deceleration.
“Specifically we see risk around the lapping of Covid-19 related contracts,” which he thinks could become headwinds in the 2021 second half and into 2022 as the economy reopens, he writes. “We are also more skeptical on the Palantir bull case in the commercial business, where there is optimism that Palantir’s simplified new products can drive an inflection in customer growth.”
Radke estimates that Covid-related contracts were worth about $120 million to the company last year, or about 10% of 2020 revenue—and he sees a potential drag on growth into 2022 if those contracts aren’t renewed. He thinks that would be a stark contrast to many other data-analytics and enterprise-software companies that could see growth reaccelerate coming out of the pandemic.
The analyst adds that the Palantir bull case rests on the company’s ability to grow its relatively small base of 130 customers by selling a more modularized version of its software, but he’s skeptical it will work. “Palantir is facing best of breed competition in many of these product areas, and we do not see the company making enough investments across marketing, sales/distribution, or self-service capabilities to make this successful,” he writes.
He advises investors to keep an eye on the company’s technology demo day on Jan. 26, earnings in mid-February, and the lockup expiration three days after the earnings announcement.
Meanwhile, Radke issued a separate note taking a look at the year ahead for cloud-data and analytics-software stocks. His top picks in the group include MongoDB (MDB), Elastic (ESTC), Veeva Systems (VEEV), and Talend (TLND). He advises avoiding not just Palantir but also MicroStrategy (MSTR), which has become a proxy for investing in Bitcoin. Radke lifts price targets to $465 from $354 on MongoDB and to $190 from $160 on Elastic. He also boosts his target on Hold-rated Snowflake (SNOW) to $325 from $300.
“As Covid-19 headwinds begin to diminish in 2021, and more impacted [or] cyclical sectors begin to recover, we expect there could be increased volatility across software,” he writes. “We believe a playbook that continues to focus on secular growth winners, with a bias towards names that have company specific or clear bounce back catalysts in 2021, makes the most sense. We see clearest signs of secular growth with catalysts ahead at MongoDB and Elastic which are among our top picks. We also see a combination of company specific and secular tailwinds at [Veeva and Talend].”
In recent trading, Palantir is down 0.4%, at $26.08. Elastic is flat, MongoDB is up 1.6%, and Snowflake is up 2%, while Veeva is off 0.4% and Talend is down 1%.
Write to Eric J. Savitz at [email protected]
