Palantir Stock-Based Compensation Update Provides Insight

08/03/2021 Palantir: Stock-Based Compensation Update (NYSE:PLTR) | Seeking Alpha
Long Ideas Tech
Palantir: Stock-Based Compensation Update

Mar. 07, 2021 6 18 AM ET | Palantir Technologies Inc. (PLTR) | 68 Comments | 92 Likes
John Rhodes Follow
13.89K Followers | Bio
Summary
In a previous article, I expressed frustration about the lack of guidance provided by PLTR
regarding stock-based compensation.
After following up with PLTR Investor Relations, I've been able to get some clarity from the
company.
Importantly, I discuss some of my revenue and expense expectations for Q1 2021 based on this
information.
Lastly, I've included a recent investment decision I made about PLTR, including the price and
impact.
The Source of My Frustration
In my previous Palantir (NYSE:PLTR) article I made this point:
Therefore, before adjustments, PLTR lost about $0.09 per share. After adjustments, PLTR earned
$0.06 per share.
Now, it should already be clear that the adjustments are almost entirely due to stock-based
compensation and related taxes. And, in turn, simple math tells us that stock-based
compensation consumed $0.15 of profits per share.
I voiced my frustration like this:
In other words, given that stock-based compensation was $0.15 per share for Q4 2020, and also
because these expenses pushed PLTR from profits to a loss, I fully expected to see some kind of
clarity. Instead, no forward guidance was provided at all.
At the time, I reported that I had reached out to PLTR Investor Relations but didn't get a response.
However, in this article, I'm going to provide an update based on several responses provided by
Rodney Nelson, Head of Investor Relations at PLTR.
GAAP EPS Correction
First, I want to point out that I made a small mistake in my calculations. Here's what Mr. Nelson
id d
https://seekingalpha.com/article/4412014-palantir-stock-based-compensation-update 1/18
provided:
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Youʼre correct that adjusted EPS for Q4 was 6 cents. One clarification is that GAAP diluted EPS
was ($0.08), not ($0.09)
In other words, PLTR lost $0.08, not $0.09, so the results were better than I reported by an extra
penny. Given the number of shares, this is not trivial. My calculation was thrown off by other
adjustments to expenses. For added clarity, I suggest you look at PLTR's Q4 2020 Press Release.
Source: PLTR
The First Response
My first specific question was this: Can you provide any guidance on the size and scope of stock-
based compensation in 2021, and beyond?
Mr. Nelson responded:
We have not provided guidance on stock-based compensation, but a couple thoughts worth
sharing: we are focused in the near term on managing dilution, which we believe will be very
small on an annual basis. In terms of SBC expense, SBC is a meaningful and important
component of our compensation, as it provides our employees a heightened ownership mentality
and incentive to create long term value for the business. We are focused on managing this
expense over time, but there is a natural spike in these expenses for most companies following
their public listing given many of these vehicles are vesting for the first time (it is coming for
certain equity compensation vehicles to vest in concurrence with a liquidity event like public
listing).
I read this very closely, multiple times. There's a lot to unpack.
1. PLTR is not providing any guidance on stock-based compensation. Therefore, full stop, we
cannot directly get the answer we seek. Instead, investors will have to make assumptions. I'll
return to this later.
2. PLTR is very aware of dilution. In addition to the expense, there is a focus on minimizing the
impact to existing investors. There is clarity here regarding long-term and short-term plans, even
if we don't have specifics.
3. PLTR is making a point that I made in previous articles. Namely, PLTR is treating stock-based
compensation as a way to invest in employees, not just enrich employees and leadership. Time
will tell if this pays off, and if this is entirely truthful, I'm willing to play along for now.
4. PLTR acknowledged the "expense spike" seen in 2020, and that it's quite natural because of the
public listing. Especially with a direct public listing, much like an IPO, it's all about liquidity.
This response is reasonable and provides a lot of color. And, while this doesn't thrill me because I
want hard numbers, I can appreciate the added details. For example, again, I'm hearing that PLTR
really does have a long-term vision.
You'll be happy to know that I followed up with Mr. Nelson and pressed for more information.
The Second Response
I asked for any and all details related to stock-based compensation, "SBC," as indicated in the first
response above. Although I was unable to get any forward-looking statements regarding stock-
based compensation, Mr. Nelson was able to share some things available in public.
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First, Mr. Nelson pointed me to Note 12 in PLTR's 10-K. Here's how he followed that up:
...spells out how many options and restricted stock units are outstanding/vested/unvested, as
well as associated expense we expect to recognize over the life of the underlying securities
(bearing in mind that these securities need to be exercised and/or vest over time before they will
be recognized as expense, hence the associated duration commentary).
Note 12 starts on page 142 if you wish to really deep dive, and parse everything. I've extracted three
selections based on what's included in PLTR's SBC (i.e., options, restricted stock units).
"I S b 2020 i h Di Li i h C ʼ B d f Di
https://seekingalpha.com/article/4412014-palantir-stock-based-compensation-update dh 3/18
"In September 2020, prior to the Direct Listing, the Companyʼs Board of Directors approved the
2020 Equity Incentive Plan (“2020 Plan”). The 2020 Plan provides for the grant of ISOs, NSOs,
restricted stock, RSUs, SARs, and performance awards to the Companyʼs employees, directors,
and consultants. A total of 150,000,000 shares of the Companyʼs Class A common stock were
initially reserved for issuance pursuant to the 2020 Plan."
"As of December 31, 2020, the unrecognized expense related to options outstanding was $1.1
billion, which is expected to be recognized over a weighted-average service period of 8.06 years."
"The total grant-date fair value of RSUs vested during the year ended December 31, 2020 was
$531.9 million. As of December 31, 2020, the total unrecognized stock-based compensation
expense related to the RSUs outstanding was $873.5 million, which the Company expects to
recognize over 3.2 years."
There is more, and there are too many nuances to fit into this article. That said, $1.1B over 8.06
years means $136M per year, or $34M per quarter. And $873.5M over 3.2 years means $166M per
year, or $41.6M per quarter. That's at least $75M per quarter by my back-of-napkin math, for at
least the next three years. To be conservative, I'd push this up to $90-100M per quarter.
I want to be very clear about something. I am not trying to be exactly right. It's impossible to be
precise even with this data. I'm looking for a ballpark. Furthermore, I would expect that I'm missing
some meaningful expenses. My point is that I'm very likely understating the quarterly expense, but
at least we now have something to use going forward.
It's clear that there's a lot to pay out over the next several years. Mr. Nelson provides some
important insights on this:
A couple other general comments – the price of the stock impacts the magnitude of this expense
(as well as determines if it makes economic sense for option holders to exercise), so generally
speaking, if the share price rises at the time of vesting, it will inflate the associated expense with
these shares. An important thing to keep in mind here is going back to the S-1, our stock
primarily traded at a value between $4 and $12 per share while we were private during 2019 and
the portion of 2020 we were private (see table below), which also provides a sense of the market
value for our stock when we were issuing equity grants to our employees during this period (as
well as some directional sense for historical periods prior to 2019).
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It's important to remember that we (i.e., investors, leadership, employees) are all in this together,
because as Mr. Nelson says, when the stock price goes up, the expenses increase. That also means
employees are doing their job well.
I have some more good news. Mr. Nelson reminded me of something critical, which I should have
stressed more in my previous article.
...keep in mind that stock-based compensation is a non-cash expense, meaning that in general it
is not a headwind to a businessʼs ability to generate cash from operations (and subsequently free
cash flow).
Per my previous article and the PLTR Q4 2020 Earnings Call Summary:
We incurred a loss from operations of $156.6 million, which includes $241.8 million in stock-
based compensation and $18.9 million in related employer payroll taxes.
Our income from operations was $104.1 million, after adjusting for stock-based compensation
and related employer payroll taxes.
As a quick check, here's PLTR's Cash Flow from Operations.
Source: Seeking Alpha

You can also see Stock-Based Compensation on that line. From March 2019 through June 2020,
before the public listing, PLTR's stock-based compensation was $56M to $91M. Interestingly, my
back-of-napkin calculation of at least $75M per quarter is right in the middle. Although, again for
reasons explained above, I'd expect that to be closer to the high end, perhaps $90M to $100M.
Maybe even $125M per quarter, but less than $241.8M which was very much driven by the DPO in
2020.
Some Very Rough Numbers
We know that PLTR generated $322M in revenue in Q4 2020. And, we know that SBC was $241.8M
plus other related expenses, generating a loss of $156.6M.
We also know that PLTR is expecting Q1 2021 Year-Over-Year growth of 45%. So, we have to look at
Q1 2020, which was reported as $161.3M. Therefore, the forward looking revenue estimate appears
to be $230M to $235M. We can expect that PLTR revenues will be higher than Q1 2019 but lower
than Q4 2020, by $90-100M.
Ad ti
https://seekingalpha.com/article/4412014-palantir-stock-based-compensation-update
t 5/18
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Next, let's use my somewhat conservative SBC expense estimate of $100M. That is to say, SBC
should be lower than Q4 2020 by roughly $140-150M.
Taken together, all of this seems to indicate that PLTR will see another GAAP loss of $100M, give or
take. The good news is that's better than Q4 2020 but the bad news is that I'm currently expecting a
GAAP EPS loss in Q1 2021.
There is a very important caveat here. Several numbers are rough estimates and loosely based on
what's publicly available. Perhaps in a future article I will have the space and time to dial in the
numbers in even more, including better estimates for the non-GAAP EPS potential. But, essentially, I
do not see "profits" coming for Q1 2021, unless we back out SBC, just like Q4 2020.
Quick Wrap Up
I'm still bullish on PLTR, especially over the next 5-10 years. I'm willing to be very patient with this
business and I'm satisfied being a partner.
Recently, PLTR has "enjoyed" quite a bit of volatility. This was predictable and I specifically said:
I'll point out that you can expect volatility from traders who are cashing out or just making
guesses ahead of time.
You can see the wild swings over the last month right here:
Data by YCharts
My point isn't that I've got a crystal ball. Far from it, because it was impossible to know if PLTR's
lock-up expiration and Q4 2020 report would kill its price, or if it was going to skyrocket. More
importantly, it was impossible to know the exact timing, size of movement, and duration.
In any event, I decided to add to my PLTR position when I saw the price collapse earlier today:
Data by YCharts
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Unfortunately, I missed the absolute bottom, but I did fairly well, buying more shares at $21.77. I feel
that's perfectly acceptable although it did increase my cost basis to over $11. That's not to brag but
instead I'm making the point that when you trust a company, and you're a long-term shareholder,
then it can be rational to add when the market seems to get a bit crazy.
Finally, I will point out that I bought more PLTR despite knowing it's unlikely we'll see profits in Q1
2021. That's due to my long term view. At the same time, if I expected profits, then it's likely I would
have invested more.
As I've pointed out several times, my price target is $75 by the end of 2023. It's funny how this
number seems so big when the price is down at $22, yet when it's been up around $35, it's not
aggressive enough.
I look forward to your comments below.
Disclosure: I am/we are long PLTR. I wrote this article myself, and it expresses my own opinions. I am not receiving
compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is
mentioned in this article.
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92 Likes 68 Comments
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Comments (68) Newest
DienteQ Yesterday, 11 07 AM
Comments (70)
PLTRʼs got some rich MFers working there, lol....will wait for my crumbs.
Reply Like (2)
Uncle Baam Yesterday, 11 04 AM
Comments (14)
Thank you for the work you put up!
Reply Like
BI84 Yesterday, 10 42 AM
Comments (48)
Great piece, whether one agrees or disagrees, this is the type of research investors should LOVE to be
seeing on this platform. Thanks for the work and sharing
Reply Like (9)
Chimpanzee ate my face Yesterday, 10 42 AM
Comments (596)
You are buying now in the midst of a historic stock market bubble. Better to buy in the ashes of the bear
market when one dollar does the work of three. It will be back in single digits.
Reply Like (2)
OutOfOffice Yesterday, 10 22 AM
Comments (94)
Thanks for the diligent follow-up. Your recent purchase gives confirmation bias to my new starting
position this week for the growth part of my portfolio. Plan to add over time -- maybe in Q2 if there is
another down trend from your projected figures :>
Reply Like (1)
nikolai.v510 Yesterday, 10 13 AM
Comments (41)
Thank you yet again for great follow up on this topic. As an investor, I get what theyʼre doing, but it still
makes me nervous. Iʼm hoping this is not out of line with other software companies.
Reply Like
doug.whatzup Yesterday, 10 09 AM
Comments (474)
This is very helpful and confirms my conviction that anything under $25 is a great longterm hold.
Reply Like (1)
clearydon Yesterday, 10 09 AM
Comments (1)
Nice DD!! Comments/questions : quarters may grow at different rates; is the annual growth rate a low or
highball figure? To what extent does the annual growth rate anticipate new and bigger clients vs
increased sales to existing clients?
Reply Like (1)
Skipper 6 '71 Yesterday, 9 31 AM
Premium
Comments (73)
Thanks for this well-done follow up. I appreciate your diligence.
As an aside - isn't this the same issue (and criticisms) WDAY experienced a few years ago? If so, then we
may be in for a really steep appreciation? WDAY went from $103 January 2018 to $228 January 2021 -
up 120% in 3 years, but a lot of volatility. I can live with that.
Reply Like (5)
charly333 Yesterday, 9 30 AM
Premium Marketplace
Comments (95)
PLTR has a structure of 3 classes of shares. The founders secured almost 50% of the votes with their
Class F shares. Practically, only they are ruling. The other shareholders will never have any say. There are
absolutely no limits to their remuneration. SBC was $ 1.27 billion in 2020 to enrich the founders. In future
I would expect very high SBC to continue, regardless of performance.
Reply Like
John Rhodes Yesterday, 9 35 AM
Contributor Premium Marketplace
Comments (4.47K)
Author's Reply @charly333
You are correct about true ownership and control. Investors are just along for the ride.
The rest? Iʼm not sure.

Have a great day.
Reply Like (1)

2959 Yesterday, 10 35 AM
Comments (422)
@John Rhodes Agree about along for the ride, isn't that just about every stock investment?
Unless you can own enough shares to get a board seat, your "voice" doesn't have much impact.
It seems that the enrichment of executives tends to be in question while enrichment of
shareholders is OK. I don't know the answer. While I think good stewardship is important, even
with the numbers provided in detail it's still speculation. I guess I look at it this way; if I want to be
in full control I'll start my own business. I'm long the stock not because of the numbers,
management, owners etc. but because I found what they were selling interesting and compelling.
If they do well, great. If not, never bet your milk money. Thanks for the information you share.
Reply Like (1)
Jim Getten Yesterday, 9 21 AM
Premium Marketplace
Comments (136)
The current stock market is an exciting way to play financial video games. If you have a youthful and
exuberant personality and money to burn you will totally enjoy the game...until you aren't anymore, then
you won't.
After watching the American consumerist video game designed by the wealthy for their edification for
almost 50 years I have become hopeful that a new, socially connected, and well-heeled (from their
parents) generation reads the tea leaves & turns it all upside down. Maybe if human nature can be
overcome something new and better will be created. I doubt I will live to see it but I pray it is coming for
my kids & grandkids. Happy Sunday to all!
Reply Like (2)
Meistersinger Yesterday, 9 05 AM
Premium
Comments (53)
Outstanding analysis and effort! Thank you.
Reply Like (7)
STEVEM Yesterday, 10 19 AM
Premium
Comments (10)
@Meistersinger Taking the Words ist of my mouth. (edited)
Reply Like (1)
TheeSoluution Yesterday, 8 42 AM
Premium
Comments (19)
Ni it I PLTR lf i t th $40
https://seekingalpha.com/article/4412014-palantir-stock-based-compensation-update
b d ith t ti ll d bli th t 10/18
Nice writeup.I can see PLTR myself moving to the $40 range by years end with potentially doubling that
by end of 2022 and I loaded alot more myself this past week
Reply Like (5)
partylikeits1989 Yesterday, 9 39 AM
Comments (19)
@TheeSoluution I bought in $30k on Friday also first time. 23.50.
Reply Like (2)
apetrzelka Yesterday, 10 38 AM
Premium Marketplace
Comments (12)
@partylikeits1989 what % of your investments? Just curious
Reply Like
RickJensen Yesterday, 8 38 AM
Premium
Comments (16.91K)
If all this is accurate (it's not like they (PLTR), didn't qualify every statement and word in each statement),
you have just been exposed to a huge pile of management double-speak.
Here's what should have been said:
Profits and owner's equity are our number one concern. If employee compensation destroys profits, why
did we sell shares to the public. So investors will be treated with the same value as employees. Going
forward, we promise not to use shareholder funds just to pay ourselves salaries, bonuses and stock
options.
Here's what they said:
We need to spend the money the way we have. Shareholders might pay for everything, but they don't
need a ROI, we decided it's much better to enrich ourselves as quickly and completely as possible, since
we don't know how long the gravy train will last. Sorry, it's just how we roll.
Reply Like (8)
Comments (4.47K)
Author's Reply @RickJensen
I like it when people question leadership. I also like it when people play Devilʼs Advocate, when
appropriate.
So, Iʼm not in agreement with you but your perspective has value. Thanks for that...
Have a great day. ☀
Reply Like (6)

RickJensen Yesterday, 9 56 AM
Premium
Comments (16.91K)
@John Rhodes
You have done an excellent job of holding a company responsible. We disagree, but I have so
much respect for the fact that you not only pushed them, but got them on the record.
I hope investors realize the difference between a "story" and a piece of journalism.
You can't get enough journalism, sadly it's almost non-existent today.
Reply Like (9)
Mr.FEW Yesterday, 8 38 AM
Comments (1)
Thank you for this and previous articles about PLTR!
Reply Like (4)
kinomoto Yesterday, 10 35 AM
Comments (59)
@Mr.FEW I agree. Good stuff.
Reply Like (1)
PEAK AUTOS Yesterday, 8 32 AM
Comments (1.65K)
Thanks for article. An important topic for investors. My question is - How does Pltr stock based
employee perks / expenses compare with other companies with around same headcount?
Reply Like (5)
Catskills1 Yesterday, 8 31 AM
Premium Marketplace
Comments (355)
Excellent article. Am long and also added on the dip. Really like their recent growth but SBC was
bothering me. You dig deep and shed light, hugely helpful. Thanks much. Staying long.
Reply Like (2)
Dobbs99 Yesterday, 8 28 AM
Comments (82)
Very Informative article regarding the SBC component of PLTRʼs earnings .
Reply Like (2)
rgbudman Yesterday, 8 21 AM
Comments (42)
Great diligence on your part, but just seems like there's so much uncertainty ahead. While I admit that
the best gains often require some risk taking, I find it tough to justify more than a small holding for this
company. Thanks again for your efforts and for sharing...
Reply Like (3)
Comments (4.47K)
Author's Reply @rgbudman
Itʼs certainly NOT my largest holding.
That said, high uncertainty is the friend of patient investors, especially those accumulating over
time. Indeed, I recently added more, per the notes the article.
Thanks for reading.
Reply Like (1)
hknown Yesterday, 8 16 AM
Marketplace
Comments (596)
If we see another loss as the author has projected, and with the growth couldron already cooling off, the
price could go back near the offering price (below 20s). I rode 11 to 30, but will wait until it goes south of
20s.
Reply Like (1)
Comments (4.47K)
Author's Reply @hknown
Q1 year-over-year should be satisfactory. But, I am not Mr. Market. Anything is possible.
Reply Like (2)
Chemical_Brother Yesterday, 8 06 AM
Comments (57)
SBC is influenced by the stock price, so given the recent drop, it will either be de minimus given the
amounts already recognized in the $40s, or actually swing negative to correct for the recent over
extend. For example, restricted share given at $10 would have been trued up to $30-$40 as an expense,
but with the stock in the $20s, the compensation expense would be adjusted lower.
Reply Like (2)

Comments (4.47K)
Author's Reply @Chemical_Brother
Youʼre on to something here.
Weʼll be able to connect the dots much better in the next quarter, getting to the true cost.
Also, Iʼm quite curious if the market will accept the impact quarter after after quarter. In part that
depends on how folks feel about tech in general. Things have turned a bit colder recent. But, that
could be a blip. Weʼll see.
Thanks for reading and commenting.
Reply Like (2)
Bayzid236 Yesterday, 8 05 AM
PRO
Comments (1)
Really hope your maths work out well here. What worries me if this go down as much as IPO price , just
because company isnʼt at profit and shorters have excuse for bringing down.
Reply Like (2)
Comments (4.47K)
Author's Reply @Bayzid236
Iʼm unconcerned. In fact, Iʼd buy more. Then Iʼd hold, like Iʼm doing right now.
Reply Like (1)
Dkorbuly Yesterday, 8 03 AM
Premium
Comments (2)
Hi, would you mind sharing your napkin math behind your 75 dollar price target in 2023?
Reply Like (8)
Comments (4.47K)
Author's Reply @Dkorbuly
That deserves an article.
Reply Like (6)
PMAHBUB Yesterday, 8 02 AM
Premium
Comments (1)
Great article and I am also holding PLTR and am inclined to agree with your thesis - look forward to more
articles and hopefully next time is it nearer to 75$
Reply Like (1)
Humidity Lover Yesterday, 7 57 AM
Premium
Comments (1)
I was in PLTR at $10 ish and it wasn't moving, so I eventually got out a little higher. I should have held it
for 3 months or so for things to play out. But I wanted to sell since I found out that the CEO stated
repeatedly in interviews that he does not care about the company being profitable, that profits will follow
if the company executes their biz plan properly. I think he's a card carrying socialist and he admits that
as well. Great for him, maybe not so great for small investors. As long as there are bad guys, there will be
no end to the US CIA/military/government contracts, much less from other countries in the world, that
they can secure.
Reply Like (3)
ashish9900 Yesterday, 8 17 AM
Comments (122)
@Humidity Lover ceo clearly refers to not invest if you are a short term investor!
Small vs big both can loose their shirts 😂
Reply Like (2)
Comments (4.47K)
Author's Reply @Humidity Lover
Alex Karp is unique. Peter Thiel is unique. I have watched everything I can. I have read everything
I can.
My takeaway, above all, is that they believe this is the most important company in the world. In
large part, it doesnʼt matter if thatʼs factually “true” or not. THEY believe it, and theyʼre acting
accordingly, as are most of the employees.
How? Long term plans. Putting customers and partners at the front of the line. Building
*principles* into the reporting, blog, demos, and more. By that, I mean philosophy - similar, even
oddly - like Berkshire Hathaway. Dig into this, and youʼll be surprised. Iʼm NOT saying the
companies are the same, at all. Iʼm saying they are principles-driven companies.
This is an “Easter Egg” Iʼve never really shared before. Itʼs worthy of contemplation, and due
diligence.
Have a great day
08/03/2021
Have a great day. Palantir: Stock-Based Compensation Update (NYSE:PLTR) | Seeking Alpha
Reply Like (8)

Comments (4.47K)
Author's Reply p.s. Hereʼs a hint.
www.berkshirehathaway.com/...
Now, read PLTRʼs S-1.
I think that many investors - including Wall Street - think PLTRʼs S-1 intro is all marketing,
platitudes, and such. I disagree. This is the marrow in the bone. The DNA on full display.
Reply Like (3)

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The rest? Iʼm not sure.

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