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Michael Burry, known for his investment in *The Big Short*, has renewed his critique of Palantir Technologies (PLTR). In a February post titled *"Palantir: An Accounting"*, he argued that the company’s financials resemble those of a consulting firm rather than a software platform. Burry predicts Palantir’s valuation could drop from around $420 billion to below $100 billion. His fund, Scion Asset Management, had previously placed put options on 5 million Palantir shares before winding down the fund, with Burry still holding onto these puts as of April.
Palantir’s stock has fluctuated significantly: it fell nearly 6% on Wednesday, surged 7.7% on Thursday (the same day Palantir announced an expanded AI alliance with consulting giant PwC), and traded near $174, down over 4% from its peak. Burry’s case hinges on Palantir’s financial filings, particularly its accounts receivable growth. Over the past nine quarters, receivables grew faster than revenue, a pattern Burry associates with aggressive revenue recognition or payment terms stretched to secure deals. In the latest quarter, receivables rose from $1.04 billion to $1.49 billion—a 43% increase in six months—while revenue grew by only 38%. Palantir attributes this shift to a change in billing practices: instead of collecting payments upfront, it now bills annually or even post-delivery. This aligns with how consulting firms operate.
A single customer, referred to as *Customer I*, accounts for 27% of receivables, up from 25% the previous year, equating to roughly $400 million owed. Despite this concentration, no single customer exceeds 10% of revenue, which peaked at $357 million. Burry compares Palantir’s deferred revenue ratio—32% of second-quarter revenue—to that of consulting firms like Accenture (40% of revenue) and contrasts it with subscription software like Salesforce (18.8 billion in unearned revenue, over 1.5x quarterly revenue). Palantir’s deferred revenue stands at $613 million, or 32% of its $1.94 billion revenue, with additional contract liabilities adding $453 million, totaling ~55% of revenue. This ratio suggests Palantir behaves more like a consulting firm than a software company.
While Palantir’s revenue grew 93% year-over-year in Q2 and operating cash flow doubled to $2.1 billion in the first half, Burry’s argument centers on the discrepancy between revenue recognition and cash collection. He argues that if Palantir’s revenue model mirrors that of consultants—earning revenue before collecting payments—its stock valuation may be mispriced. At 150x earnings, Palantir’s shares could see a significant drop if the market adopts Burry’s perspective. His scenario of a $100 billion valuation represents a 75% decline from current levels. Burry’s critique is not an accusation of fraud but a reclassification: if Palantir’s revenue is earned like a consultant’s, its software valuation may be overstated.
Source: The Motley Fool
