Les Billets de Monocle

An arm and a leg

15 February 2023

Two burning questions dominate the current market landscape: 1) Central banks and inflation, and 2) the subsequent impact of the first question on the 2023 markets.

As for question 1), it's like debating the sex of angels, with as many answers as there are economists. The latest trend on the topic is, after the "hard landing" or the "soft landing," the "no landing" scenario: the speed of the plane prevents any attempt to land, so it's better to go around for a second try.

So, to answer question 2), I believe it's always better to do a little valuation exercise. On Monday night, Palantir released its report.

Here are the key takeaways:

Management: Founded by Peter Thiel, former partner of Elon Musk at PayPal and one of the early investors in Meta > GOOD (I highly recommend his book on startups, "ZERO TO ONE.")

Governance: Thiel and his cohort wield complete voting control. Thiel had set up a fund that invested in crypto. While he claimed a year ago that cryptocurrencies could increase by x100, he was actually selling everything. > BAD (A questionable move, which even raises doubts about something as mundane as walking the dog.).

Business: Palantir manufactures and sells software in the security sector. Rumor has it that their technology played a pivotal role in aiding the capture of Bin Laden. So, their clients are mainly governments, including the US, which accounts for nearly half of their revenue. > GOOD for revenue predictability, albeit limited by the size of the market.

The numbers::

> Revenue: $1.9 billion, up 24% from last year (but there was an acquisition).

Cash flow from operations: $220 million, compared to $330 million last year.

> > Stock-based compensation (SBC): $570 million, compared to $780 million last year.

> Cash on the balance sheet: $2.6 billion (unchanged).

To summarize, Palantir remains a business that is still hemorrhaging significant amounts of money. In other words, this year, we must subtract the $220 million operational cash flow from the $40 million in investments and the $570 million in stock-based compensation. As shareholders, we bear the brunt of SBC in the form of newly issued shares to employees—picture a pizza initially planned for six people, but now accommodating eight.

Now, let's delve into the stock price: As of Monday evening, after-hours trading showed the stock at $9.00, experiencing an 18% surge. With 2.2 million shares in circulation, the market capitalization reaches $19 billion. This valuation mirrors the closing price from Palantir's initial public offering on September 30, 2020, where it concluded the day at $9.50. Moreover, the current price sits 40% higher than that on January 1, 2023, while still marking a 75% decline from its value two years ago.

In terms of stock performance, Palantir has seen its fair share of ups and downs, encompassing the full spectrum of market fluctuations.

Now, let's address the burning question: What is Palantir truly worth? It doesn't make money and sells customized solutions to demanding entities, so it can't be sold like hotcakes. In three years' time, assuming a growth rate of 15% per annum, Palantir is projected to amass $3.0 billion in revenue. At best, they could generate $300 million in net income from that. If I'm willing to pay 30 times that amount, it's a little less than ten billion, and we can add the cash if we want, but even then, it fails to complete the valuation puzzle.

All of these estimates are just back-of-the-envelope calculations. However, they provide the big picture: Palantir is currently valued as if we were three years ahead, in a scenario without any setbacks.

In short, Palantir is worth an arm and a leg, as they say across the pond.

You can repeat the exercise with many of these darlings of the Nasdaq, and you will generally come to the same conclusions.

Next up is SHOPIFY, this Thursday - bigger fish with a market capitalization of $60 billion.

Market and portfolio focus


Over the past week (from 2/6 to 2/10), the fund and the markets have not seen any major developments. The recent US inflation figures indicate a slower decline than anticipated, affirming our cautious stance.


Pershing Square Holdings: increased position (from 1% to 2% of the fund) after attending the annual conference held by Bill Ackman in London last Thursday. The excellent quality of management coupled with a discount of nearly 35% on the portfolio’s net asset value make the current price very attractive in our eyes.

Trilogy Metals: sold position (from 0.5% to 0% of the fund). On this investment, we had implemented our "copycat" strategy, which involves selecting convictions from the managers on our short list (with a fundamental review of valuation and investment thesis). The fund from which we had borrowed the idea (Baupost) has just sold half of its position at the same price they initiated the position in 2016. This prompted us to sell the position.

Have a great week,



This presentation is a promotional document. The content of this document is communicated by and is the property of Monocle Asset Management. Monocle Asset Management is a portfolio management company approved by the Autorité des Marchés Financiers under number GP-20000040 and registered with the ORIAS as an insurance broker under number 10058146. No information contained in this document should be construed as having any contractual value. This document is produced for information purposes only. The prospects mentioned are subject to change and do not constitute a commitment or a guarantee. Access to the products and services presented here may be subject to restrictions for certain persons or countries. Tax treatment depends on individual circumstances. The fund mentioned in this document (Monocle Fund SICAV) is authorized for marketing in France and possibly in other countries where the law permits. Before making any investment, it is advisable to check whether the investor is legally entitled to subscribe to the fund. The risks, costs and recommended investment period of the funds presented are described in the KIDD (key investor information documents) and the prospectus, available free of charge from Monocle Asset Management and on the website. The KIDD must be given to the subscribers before the subscription. Past performances are not a reliable indicator of future performances. Monocle Asset Management cannot be held responsible for any decision taken or not taken on the basis of information contained in this document, nor for the use that could be made by a third party. The investor may lose all or part of the amount of capital invested, as the funds are not capital guaranteed.

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