Hey guys, it's hashem today, i'm going to tell you what's wrong with palantir stock. I will tell you some of the biggest reasons why palantir could fail and why the stock price could come crashing down in the future and in case you're. New here, palantir is one of the biggest positions in my portfolio, but one of my patreons recently suggested i play a little devil's advocate and i thought that is an amazing idea, because we often fall into the trap of only talking up the stocks that we are Invested in and stocks that we like, but even if you love the stock worship, the ceo whatever, if you don't acknowledge and properly weight the risks, you are not an investor. You are just a member of the fan club.

You will see some of those members of the palantir fan club in the comments section below saying: stop spreading the further my stuff dislike and subscribe. But if you're a serious palantir investor listen up, because i will share my top 5 real risks for this business and no, i am not going to talk about the bs stuff that mass media writes in articles like palantir is a five dollar stock. I am not going to talk about share dilution because growth based stock compensation for a company at this stage is absolutely normal, and it's actually a good strategy. Senior management have exercised a number of their long-term options recently, and the total number of options rsu and warrants - has dropped from 810 million and 2020 to 554 million and q3 just before people point out the obvious incorrect information in the comments, i also won't talk about.

Palantir's governance structure, where the senior management hold absolute voting power in the company. For me, this is actually relatively immaterial. Many other public companies also have quite large chunks of their shares held by the founders or senior management. Elon musk owns about 18 of tesla and in reality the management's direct accountability to shareholders in real everyday decision making is negligible.

But let's talk about some real issues that palantir does have, because those issues are important to shareholder. The company still earns a very large part of their total income from a very small number of customers. This has been slowly improving, but in the latest. Thank you for q3, 2021 palantir still has 18 of their total revenue coming from just the top three customers.

The total number of customers in q3 only grew by 20 percent, while the revenue for the top 20 customers grew by 35 percent. So you can see signs of increased concentration there and some of palantir's biggest clients have been the us government and us military and on page 38 of that same quarterly report, you can see that over the last year, government revenue for patented grew by 57, while commercial Revenue only grew by 29. Now palantir is massively reliant on government income. It makes up 60 percent of their total revenue and is almost entirely coming from the u.s government rather than any other government around the world.

This carries a massive risk of overexposure, a change in government policy. A different administration could, however, illogical good and go deliver a massive sucker punch to palantir by just cutting them out by reducing spending whatever and the us government can't pay 57 more to palantir every single year. So, eventually that music is going to have to stop this problem is compounded by the fact that outstanding deal, value for palantir has slowed down recently. It was 3.4 billion in q2 2021 and only went up to 3.6 billion and q3.

That's the amount of contractual value that palantir have signed, but not yet delivered. So that indicates that the prospect of future growth at the moment is not quite looking as rosy as it did to continue growing in the future. Palantir will need to transition to retail or at least to smaller size, clients, and there are big unanswered questions at the moment on the level of demand for their very highly sophisticated, very complex software. From smaller clients.

There is a big difference in the design, integration and use of retail products compared to commercial products, and palantir has yet to show any signs that they can actually go and crack the market. The next big problem for palantir that i haven't seen many people address is their public attitude to many markets around the world. Now i just talked about patented being a large contractor for the us army and the us government, so you would naturally expect that to a degree anyway, but alex carb has gone on record multiple times with statements saying that countries like china are the enemy of the United states and therefore companies should not work with the enemy. Some supporters might think this is noble or a great thing to say or whatever, and the us government probably expects him to say it to a degree as well, but very early on in the growth of the company.

Palente has already effectively closed his doors to china, which is likely to become the world's biggest economy in the next few years, and i'm guessing they're also not going to get contracts from russia or any other ex-ussr countries. The middle east, large parts of south america, and maybe other parts of the world too, and if you really do want to become one of the world's biggest companies cutting out more than half of the world at the outset, from your prospective target market pool might not Be all that useful burning, a lot of bridges and making enemies can also come back to bite you in unexpected ways in the future. Another big problem with palantir is their costs. Palantir is a relatively early stage growth company and they have been losing money for some time with plans to lose more money before they get to the break-even stage and the gross margin numbers in the p.

L, do look pretty good, but the costs of running the business are not showing the sort of signs i would expect of dropping just yet. You can see on seeking alpha that admin costs have been running at close to 100 of revenue last year is a bit of an anomaly because of ipo costs, and yet it's slightly lower for the trailing 12 months. But these ops costs need to come way way down as the company scales to hit profitability. By the way you can get 50 off the premium annual plan with seeking alpha.

If you use my link in the description, i've been using seeking alpha and paying for my account way before i ever spoke to them. Let alone have this affiliate link, so i personally genuinely think it's a great way to get company performance data fast. That's what i use - and i didn't even get the 50 discount myself. So if you are interested in getting it, feel free to use that link and i'll get a bit of commission too, so you'll be able to help support the channel along the way.

All right. The next risk is that palantir gets a little ahead of themselves with investments. In the last few months, palantir has made a number of investments in other companies. Some of these companies are also palantius clients.

So there is a slight problem of a circular reference with palantir. Investing money in a company and then that company paying valencia the money back for being their client. You can see in the latest quarterly findings. The pounds here invested quite a lot 226 and a half million dollars in a bunch of relatively speculative, very early stage companies.

That's 21 of the total revenue, palantir earned in 2020. and sure palantir probably knows way more about those companies than i do, and they have many much more smart people looking at those companies and making those decisions. But this is also pretty unusual and it carries a lot of risks if palantir continues doing a lot more of this style of investing, maybe investing even greater proportions of the revenue in other companies, it could turn pretty ugly if, for example, we get a big market Crash and the value of many or at least some of those investments goes to zero. This is a trend that has only been going on for two quarters of palantir.

So, let's see what happens here over the next few reports and the next risk is probably the most subtle, but also the most dangerous palantir are playing the long game with their business. They are investing back into the company they're, investing in growth, they're growing at a reasonably fast rate and they're waiting to make those big bucks in the future rather than making. You know a profit on a relatively low amount of revenue today, but they are also in a niche that has natural time bounds. Software and systems naturally have limited shelf lives before major disruption happens.

Major innovation happens that requires complete replacement, or at least very significant upgrades. No matter how well integrated the software is, how good it is, how used everyone is to using it? How much everyone is relying on the time will eventually come when it gets thrown in the bin and that time in the grand scheme of things, isn't all that long ask ibm and yes, palantir is the sort of innovative company that can probably continue improving massively in Developing their product to stay ahead of the pack, i am not saying that that is impossible, but technology is also the sort of thing where major shifts in tech. Let new players quite quickly turn up and out muscle. The dinosaurs just like palantir, did to other companies to get all of those government military contracts in the first place and if palantir waits too long in there's a growth phase, it could unfortunately turn up to be too late.

Their software and services could one day be so commoditized because of the nature of the service they provide. For example, if we see a big improvement in hardware, tech or a new company might turn up with even better tech, and then palantir might be the dinosaur that gets taken to the cleaners. On top of that, any sort of major negative news, no matter how irrelevant you might think it is - could be a big catalyst to propel a downward curve. Any kind of misuse of a software or a malfunction of some sort could make for an overnight collapse.

Now i am sure that it is very highly unlikely, but we have seen it happen. We have seen it happen with companies with very high levels of security, a database leak or a new hacking approach. We've never seen before can be completely devastating because palantir has all of its eggs, essentially in one basket in terms of the product sure there is a lot of different flavors and variants. They all have different names, but ultimately it's one large data, aggregation and analysis proposition.

Should you be concerned about all of these risks? Well, probably, i am concerned about the risks of every single company that i invest in, but i prefer to acknowledge and assess those risks properly to build them into my valuation, rather than ignore them. If you enjoyed this video, please don't forget to smash the like button for the youtube algorithm. Thank you so much for watching. I really really appreciate it and, as always i'll see you guys later, you.