What happened
A special purpose acquisition company (SPAC) backed by Palantir Technologies (PLTR -3.69%) has gone bankrupt, which could put pressure on Palantir’s growth plans and the value of its investment portfolio. Investors are concerned, sending shares of Palantir down as much as 5.5% on Monday.
So what
Palantir is a data analytics company serving both commercial and defense customers. During the SPAC boom, the company made a series of investments in newly public companies that were also its customers, hoping to build relationships, grow revenue, and get an eventual payout if the investments pay off.
But investing can be a tricky business. Fast Radius, an on-demand manufacturer of metal and plastic parts, has filed for bankruptcy protection just nine months after it went public. Palantir joined Goldman Sachs Group and United Parcel Service in providing $100 million in financing on the SPAC deal.
William Blair analyst Kamil Mielczarek estimates that the bankruptcy could cost Palantir about $9 million in annual sales, should Fast Radius rework or cancel its contract via bankruptcy. More importantly, the bankruptcy is likely to cause investors to look more skeptically at Palantir’s other SPAC investments.
Now what
It all adds up to additional uncertainty for a company that desperately needs stability right now. Palantir was a big winner not long after its late 2020 initial public offering, as investors were intrigued by the quality of its software and its potential for growth. But in the quarters since that offering, a lot of that initial momentum has faded, and Palantir today trades below where it did when it first went public.
Even after the declines, Palantir still trades at 9 times sales. That’s a rich valuation for the defense side of the business, and only justifiable on the commercial side if the company can show solid growth in the quarters to come. The issues at Fast Radius point to how hard it might be to generate that growth and expand margins heading into 2023, which is putting pressure on Palantir shares.
Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs and Palantir Technologies Inc. The Motley Fool recommends United Parcel Service. The Motley Fool has a disclosure policy.
