Will SPAC investment help Palantirs share price?
T he Palantir [PLTR] share price slipped 4.7% last week, in what has been a dismal couple of weeks trading. Since 28 June, the stock has tanked more than 12.5%, in contrast to the S&P 500 and Nasdaqs respective 2.1% and 2.4% gains. The Palantir share price was weighed down by the Biden administration cancelling its $10bn JEDI (Joint Enterprise Defense Infrastructure) contract with Microsoft [MSFT]. While Palantir isnt Microsoft, it does rely on government contracts to keep it in business, which explains why shareholders suddenly got skittish after the White House shredded its contract with Microsoft. The Palantir share price is vulnerable to sudden movements for a few reasons. Having gone public via a direct listing in September, the stock has quickly become a favourite trade of the Reddit crowd  Palantirs first-quarter presentation boasts of having 1.5 million individual investors. Innately, thats going to inject some volatility into the Palantir share price. Wall Street, on the other hand, is wary of the stock, with its $20 average analyst price target, according to Refinitiv data, suggesting a 14.1% decline on Fridays closing price. The other problem is that Palantir continues to burn through cash. In the first quarter of the year, it posted a net loss of $123m, compared with a $54m loss in the previous year. That comes despite revenue coming in at $341m, up from $229m seen in the same period last year. $123million Palantir's Q1 net loss - up from $54m in previous year  Then theres Palantirs reliance on government contracts, such as the $800m contract it scored to deliver combat intelligence software for the US Army. That places another level of vulnerability in the stock. Palantir targets SPAC investments to acquire customers  The perception around Palantir is that it is solely the preserve of governments or large corporations. Its first-quarter results do little to dispel this conception, with government sales representing the lions share of revenue at $208m, up 76% year-on-year, with an 83% jump in US government contracts. To expand its reach, the company is taking a novel approach. According to Barrons, Palantir has been investing in SPACs, or, more specifically, the PIPE funding that accompanies SPACs. These publicly traded blank-cheque companies raise capital from investors with the expressed intention of finding another company to take public through a merger. A SPAC will also raise additional capital from institutional investors through PIPE funding. Barrons reports that Palantir has stumped up more than $100m to invest in at least eight PIPE transactions. In exchange, SPAC targets sign long-term contacts to use Palantirs analytics platform. Palantirs biggest investment so far has been in German air taxi company Lilium, which is merging with SPAC Qell Acquisition [QELL], with Palantir shelling out $41m. With SPACs, we see a historic opportunity to invest in our customers - Shyam Sankar, Palantirs chief operating officer  The second-largest investment was $21m in Sarcos Robotics, an industrial robotics manufacturer, which is going public through a merger with Rotar Acquisition [ROT]. Other investments include SPACs taking Babylon Health, Celuarity and Roivant Sciences public. Shyam Sankar, Palantirs chief operating officer, told Barrons that Palantir only invests in about 10% of the deals it sees. For Sankar, the SPAC investment is a chance to combat the perception that Palantir is only suitable for large companies or governmental bodies. We dont think that to be true, he says. Despite the recent drop off in the Palantir share price, this could be a chance to buy into a company that is still in its growth phase. Between 2021 and 2025 Palantir, expects an annual revenue growth of at least 30%. 30% Palantir's expected annual growth between 2021 and 2025  Its commercial business is also growing. In the first quarter, commercial business generated $133m in revenue, up 19% year on year. At the end of the quarter, Palantir had bagged 15 deals worth $5m or more and six deals worth over $10m, with 4.6 years being the average contract duration for commercial customers. In the second quarter, Palantir expects revenue to grow 43%, to come in at $360m. Should Palantirs strategy of adding commercial customers through PIPE funding pay off, then it could add longer-term revenue streams. However, it could be an expensive way of growing.