One of the stocks that hasn’t had such a good March is Palantir Technologies Inc. (NYSE:PLTR). Indeed, shares of PLTR stock are down well over 10% from the peaks this past month. It appears investors are continuing to digest a myriad of issues plaguing this stock.
As I pointed out in a recent piece, three key drivers of this stock’s decline over the past few month include: an expiring lockup period, poor earnings, and underwhelming growth projections. Now, if that’s not bad enough, there’s a recent development that has added some further complexity for investors.
What’s this development I speak of?
Let’s dive into what transpired, and why recent developments appear to be in Palantir shareholders’ favor.
More Transparency Is Better than Less for PLTR Stock
The aforementioned contract Palantir received from the NHS was awarded approximately one year ago. The NHS tasked Palantir with providing data solutions to aid in the country’s Covid-19 response. Indeed, given Palantir’s dealings with various governments and government entities, this contract was sort of taken for granted, and forgotten about for some time.
Then, December rolled around. A U.K. group called Open Democracy filed a lawsuit against the U.K. government. Open Democracy, a group whose goal is to promote democratic debate across the world, challenge power, and educate citizens, claimed the Palantir deal was done secretively. Too secretively. The people deserved to know why a U.S. CIA-linked “spy tech” firm would be granted access to the health care data of millions of U.K. citizens.
Ok, fair enough. However, this is where the story gets weird.
On Mar. 30, Open Democracy penned a piece entitled “We’ve won our lawsuit over Matt Hancock’s 23 million pound data deal with Palantir.” In this victory lap, the advocacy group claimed that the government caved to its wishes. Furthermore, the government committed “not to extend Palantir’s contract beyond COVID without consulting the public. There will be no more mission creep without assessing our rights. They have also agreed to engage the public, via patient juries, about whether firms like Palantir are appropriate for a long-term role in the NHS at all.”
So, sounds like Open Democracy got what it wanted. However, the story is told a bit differently from the NHS perspective.
Palantir Deal Still On, Door Left Open for Future Deals
In a BBC article the following day, the NHS told a different account of what happened.
Indeed, the NHS claimed that Open Democracy ultimately caved, dropping their case “when they realised they didn’t have a leg to stand on.” Furthermore, the NHS stands by its practices in contracting these services with Palantir, claiming everything was done above board.
If that wasn’t enough, the NHS sang the praises of Palantir. The company noted that Palantir’s analysis of large volumes of data by governments and businesses provided “useful insights patterns and connections” that aided in the fight against Covid-19.
Now, the NHS did acknowledge it could do a better job of being more transparent moving forward. Indeed, Open Democracy’s lawsuit did prompt some level of review from the NHS side. However, this “he-said-she-said” scenario is quite intriguing, as it speaks to concerns some investors have had with how durable, sustainable, and “sticky” Palantir’s government contracts really are.
One of the key reasons investors buy PLTR stock is for the lucrative government contracts the company has garnered over the years. Indeed, the company’s core solutions are tailored to the needs of various government agencies.
The company operates in a sector that is highly sensitive to relationships. Better working relationships are typically always better. However, in Palantir’s case, they’re critical.
How Palantir does business is likely to be in the spotlight more intensely moving forward. For bulls on this company, that shouldn’t be a bad thing. Unless you think there’s something nefarious going on.
Personally, I don’t buy the thesis that any company with a large percentage of its revenue tied up in government contracts is inherently less-risky than a similar company with a high concentration of business tied to large private clients. It’s the same deal.