What happened

Shares of software platform Palantir (PLTR -1.38%) fell 14.7% in November, according to data from S&P Global Market Intelligence.

Palantir burst onto the public markets in 2020 as a tantalizing software play with products used by the CIA and Department of Defense, which Palantir is now expanding to commercial customers.

However, growth has decelerated this year, as its third-quarter earnings report showed. Additionally, Palantir made strategic investments in start-ups using its software at the height of the 2021 SPAC boom – and those bets are now souring in a big way.

So what

In the early part of the month, Palantir reported third-quarter earnings that disappointed the market. Even though revenue beat expectations slightly, Palantir missed on the bottom line, which has been a focus for investors amid rising interest rates. While it had been somewhat known that Palantir's government business was slowing this year as some pandemic tailwinds faded, the negative surprise in the third-quarter results was a total lack of growth among its international commercial customers.

The mere 22% overall revenue growth wasn't enough to satisfy skeptical investors, who are worried about both slowing post-pandemic growth and higher interest rates, which crimp the value of high-growth stocks with the bulk of their earnings far in the future. While Palantir does post adjusted profits, it's still actually very unprofitable, thanks to its high levels of stock-based compensation that totaled $435 million through the first three quarters of 2022 alone.

Later in the month, another negative was brought to light by William Blair analyst Kamil Mielczarek. In a Nov. 14 analyst note, Mielczarek highlighted that one of Palantir's investees, Fast Radius (OTC:FSRD), had filed for bankruptcy. Palantir had provided PIPE (private investment in a public entity) financing in Fast Radius' SPAC back in 2021 at the height of the SPAC bubble, in exchange for a long-term software contract.

Palantir has invested in 20 other such public companies, which Mielczarek now estimates are down 82% on average from Palantir's purchase price. Not only have these investments hurt Palantir's own financials, but if these companies go bankrupt, their subscription revenue to Palantir will go away as well.

Now what

Palantir remains an incredibly interesting and controversial company. On the one hand, its software is essential for U.S. and NATO's mission-critical combat work against terrorism, in Ukraine, and in the Far East. Furthermore, it appears its U.S. commercial business is gaining traction, as enterprises are investing in big data analytics to drive competitive advantage, even though Europe has been more reluctant to adopt Palantir's platform. 

However, doubts over Palantir's ultimate profitability, as well as some of its questionable investments, show another side of the thesis -- that of a potentially reckless spender and undisciplined management, with a questionable path to profitability.

With real GAAP profits a ways off and several of its investees running into trouble, November was a month in which the negative side came to the fore for Palantir shareholders.