PLTR: Palantir - first public Quarterly Report


Palantir… A friend met them under heavy NDA’s in 2007 in Palo Alto in an unmarked building. He is a prior top management alumni from Google and still says his mind “was blown what they were doing for counter terrorism.” Now they are expanding into finance and private business to leverage big data and pattern recognition to solve problems for business, like they did for .gov and secretive organizations. Massive government contracts. Thiel is on board, as well (founder of PayPal and seed investor in FB). Smart team who executed previously and have larger aspirations, now.

The was an open letter posting their position on tech and their intentions. A link to that letter is here:…

I wrote this one month ago to friends and family members:

Things I don’t like:
Our sales efforts involve considerable time and expense and our sales cycle is often long and unpredictable.
3rd tier SaaS Growth in the 40%s (Tier 2 is 70%, Tier one is 100% or higher (think ZM, CRWD, DDOG, FSLY, LVGO, TDOC here)
They take advantage of not giving investors as much information as other companies. I get it, but this will not help their STOCK price. I suspect this will not matter in the long run, however.
Less experience with the commercial side. This may take 2-6 quarters to improve
They are using a contract sales model, not a monthly subscription or SAAS model. This doesn’t allow them to pivot to market demands, or current market prices. Also, this model likely doesn’t support sticky sales of adjacent products with quickness of the SAAS model.
The lumpy contract nature and thin details about execution mean we cannot (nor can they) predict where and when their next dollar is going to come inside of a largish range.
The sales process is face to face, indicating that the product is not capable of selling itself well at this point. It’s a hands on process. (update: I don’t believe this is relevant or true anymore)
Things I love:
Experience with .gov
Growing and likely stunted on the commercial side. Potential acceleration quite possible, if sales cycle shortens and commercial success is found
Margins are growing. From 21% in 2019 to 48% in 2020 (H1)
Losses are significantly decreasing. They are still losing money, mainly from SBC to employees and agents.
They need growth in S&M and in R&D. Both are growing +50% faster than prior year
$1.5B in cash
Things I’m not sure about:
They are a bit hidden. As more commercial and .gov opportunities present themselves, they are likely to inflate their valuation
The nature of their prior business may require a culture shock to successfully sell to the commercial public with speed and volume. This works as a competitive disadvantage when they confront DDOG, AYX, CRWD, SNOW, etc. (This looks be be remedied through their pivot in the sales team.)
Few customers. Their model currently requires those customers to grow A LOT to influence their growth in aggregate if they cannot get significantly more new customers.
Who are their 3rd party security vendors? (is is CRWD? ZS?PANW?)
US government work could be challenged (ironically) by their going public.
Other details which are important
80% of shares are in lock up until February of next year. This is likely a buying opportunity at that time.
39% of employees are Engineers. How high should that number be to fuel growth optimally?

Bottom Line: I think I’ll throw 1% at them and watch. I’m not in a hurry as I believe they have significant opportunity for adding shares in the next 6 months. Find some dips and buy some shares. I’ll likely structure my 1% stake as 3 thirds with targets at 5-10% below current prices. (I made some additional purchases on the down days this week and added up to 3% as of yesterday’s close.

If they resolve my negatives and questions, I’ll throw more of the available capital to them.


Here are my notes:
Palantir – Q3 2020 update (1st Quarter public)

I started following them after a tip from a friend who worked closely with their management. He speaks very highly of them and their intentions. Peter Thiel is also associated with this group. My initial summary is above.

Selected out of 999 bids for government contract, with a very strong and positive relationship with the government. (they clarify they are apolitical with ALL governments and have history with UK, France and Germany, Columbia and many others. This was a key feature of their PAST 17 years in operation.

Moving to today, they are partnered with Amazon AWS.
Modular, build a la carte theme with new tools. They discuss this in the narrative and in the Q&A how this is shortening their install to value cycle at the customer.
G Here: These are 9 months (3 quarters) numbers. Their acceleration will grow numbers faster than just rolling up and factoring 4 quarters for an annual.

Q3 2020

81% Adjusted Gross Margins
$191M ->$289M Rev +52% YoY
Profit 25% YoY – first profitable quarter
ARPCustomer - $4.2M-> increased 38% to $5.8M
ARPC Top 20 $17.4M-> increased 36% to $23.6M

G Here: They execute with lumpy, inconsistent large contracts. Q-Q results might be tough to model tightly, although, they must have good visibility into these numbers, their range is very tight for some of their forecasts. Any misses in quarter will likely flow through to next quarter. Contract durations in years, not month to month. (3.6 year duration, currently)
GM 70%->81% (they thing terminal GM will be ~85%)
G&A – 49M (17%) of rev20% of rev down from 32% from prior year (travel and IT expenses?) They state in the Q&A that this is actually due to modularization and focus on shortening the deployment time, a key strategic improvement.

G Here: THIS IS VERY GOOD NEWS for the sales cycle and for upconverting pilot customers to Scale (definitions of each bracket of customers is below)

Op Inc swung positive this quarter for this initial public quarter. $73M $11M above high end of guidance
G Here: I believe this is solely the result of a long term Airline contract for $300M! While certainly a good thing to get a large value contract like that, there is no visibility into whether they remain profitable next quarter. For the record, I could care less about this information, currently. This company is reinventing itself to be more public facing and commercially successful. In this extreme growth mode, they will likely not be driving to keep all Operating Income positive when they can benefit more from optimizing for growth and deployment efficiency.

In the Q&A, they mention front loading contracts in 2019-2018 up front payments impact 2020 numbers. This is a big deal. That means they are growing against comps that are higher and not helping them at this moment in time as much of the benefit was booked in prior quarters. Growth will appear to be artificially stunted from these decisions and higher growth percentages will reflect more recent organic growth from recent work. (It’s kind of an Alteryx approach, but now we are on the back side). They mention specifically shifting from this method recognizing revenue.

$1.8B in cash and equivalents

New customers not classified initially (pilot customers) ← no formal call out in charts, but they mentioned “Pilot” twice.

Customer Phases: (There is a good graphic in the presentation on page 29)
Acquire: Customer has spend of less than $100K in revenue ($4.2M loss). This group improved considerably and is the only place they are losing money post acquisition, in aggregate.
Expand: Spend greater than $100K and Neg Contribution Margins.
200 customers in this group.
Scale $100K and positive contribution margins. (all customers will end up in the Scale Phase, is the plan, of course)

Contribution margin is increasing for all customer groups.

30% revenue growth for 2021
From questions:
Gov Health care growth was very small last year. Largest growth from there.
17 years with 5 administrations in UK, 2 in Germany, No disruption with administration change.

Foundry modules are the focus. Significant work was done here to get customers up and running faster. I mentioned previously that this cycle time is key and they have dramatically improved this time to delivery (great news)
Software defined data integration (this is a new focus which cuts down on manual or semi-manual configuration) is now enabled by AI data type and relationship learning in their systems.
ERP suite – Saved $50M – use system within a few hours. (industrial)
Time to value very reduced. I believe in the early days, they were measuring this in weeks.
85% Adjusted Gross Margin Target (Currently at 81%) ← even if they don’t get all the way to 85%, this is rock solid.

93% of rev from reoccurring customers. These customers are contributing less and less to the total revenues, but, their contribution is quite high. I believe this will moderate over time, but there is discrete risk in losing one of those customers (average value as a percent of revenue is ~2% per customer in that group). This isn’t really that concentrated, but, its higher than most of our other companies by an order of magnitude.

Headcount growth was 4-5%… what should it be going forward?

I started a position in mid October in the mid $9 range. They are currently trading at $15.50 or so. There was significant selling pressure later in the day yesterday that was not sector driven. At one point, the stock was down 15% on the day. It started recovering the instant the presentation linked above his the IR page.

As of this morning, it’s up an additional 9% and has recovered all of the pre-earnings dip.

I currently have a smallish position in the company. They are not top tier and have a lot of questions, but, there are no red flags, they have an incredible reputation and they have not even really gotten traction in the commercial space.

Long PLTR @ 3% and addition additional shares to target ~5% stake. Why? I believe their commercial flywheel will reveal itself in the next couple quarters and I believe they are facing very favorable comps as a tailwind.


Thanks for these notes. I have also been interested in PLTR but passed on PLTR based on concerns I listened to on a recent podcast by Scott Galloway. Still need to kick the tires myself but these seem to be the red flags he raised:

17 year old company has never turned a profit, has spent the 3 billion they raised over that time. Why has it taken them so long to get to that point?

“Renewal rate is terrible”. [Curious to dig into this more and what it looks like]

Growth seems dependent on the government continuing to need them.

130 clients with just 3 responsible for a third of revenues.
(I did not see a new customer count yesterday but they claim a decreasing % revenues comes from top 20 customers vs. 2019; 61% vs. 68%).

On the issue of “ethos,” he spoke a lot about his concerns about the values of Thiel and the CEO and the apparent contradictions between their own personal values and the business.

With Thiel issuing himself F shares to continue to control the company it would be important to buy into his vision. Thiel’s libertarian values seem at odds Palantir goal of being the operating system for government data and surveillance.

Karp (the CEO) calls himself a socialist, how do those values align with PLTR as a business?

you can listen to it here if you are interested, not for everyone especially kids but I enjoy it.
PLTR rant starts around minute 8:…


I was really interested in PLTR because of founders background. But the #s give me serious concern.

		20Q3	19Q3
Revenue		289	190
COR		149	65
COR/Revenue	52%	34%
S&M		335	120
S&M/Revenue	116%	63%

This makes me think it is taking a ton of consulting time to get projects going. In other words, seems like as of Q3, license : service ratio is 1:1.
If this trend continues their valuation will be more like a consulting firm.

YoY, Revenue grew 52% but S&M is up 279%.
S&M/Revenue is now 116%. That is crazy.

I think Q4 will be worse. Their business is so dependent on govt. contracts. Its a revolving door right now in DC. People are being replaced left, right and center. And that is going to continue into Q1 '21.
How can Palantir have any sales visibility even with the kind of spend we see above?


"This makes me think it is taking a ton of consulting time to get projects going. In other words, seems like as of Q3, license : service ratio is 1:1.
If this trend continues their valuation will be more like a consulting firm.

YoY, Revenue grew 52% but S&M is up 279%.
S&M/Revenue is now 116%. That is crazy."

100% Accurate. I’m taking a longer view here. If you view these changes as a longer trend, they are very problematic.

On the other hand, if you view these as a sign of intense, category and sales channel reinvention, it would be expected that the spend in this area (along with R&D) would be intense, at a high level and for a brief period of time.

The question is, how well does the pivot happen? On the back side of that transition to serving public market needs, do they see a trend down in S&M expenses?

Its early in the transition and they need to establish themselves as willing, able and competent at making this change. On the other side of that change, the resulting business may be tier 1… or not.

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PLTR feeds heavily in the DoD trough.

Not saying it’s a good thing or bad thing, but it’s a thing you need to be aware of.

You should also be aware that as it expands, it’s subject to political spotlights that can be pressured by outside perceptions…

I’d like to keep politics out of the discussion. I’m incredibly impressed by the product and capabilities.

But I’m also incredibly unimpressed that you’re essentially laying your equity at the whims of government contract decision making.

I’ll be watching for the commercial case and business to prove it’s more than a government business.


Here are my objective thoughts,

Palantir is a company created to serve the technology needs of government for the last 17 years. They have a moat and I believe a near monopoly as other tech giants like Apple and Google are getting increasingly apprensive in working with and for government.

In the last 17 years palantir has dealt with the complexity of government data, the need to aggregate, parse, disseminate and maintain the sensitive nature of the data in accordance with the laws and changing policy and regulations. This is good experience that can translate to the medical and health industry which they are doing now in both private and public sector.

Simply put, I think they are the only company touching several large public and private industrs that for reasons of their own, other companies are not chasing at all. There is great potential and upside because of this.


I couldn’t agree more with the .gov business assessment and concerns raised above.

That business is lumpy.
It’s at the whim of organizations which often do not control their own monies (to innovate, or be efficient).
It’s also not a place of torrid growth, generally.

The long sales cycle and the often prohibitive bureaucratic processes required to win work make this even less attractive.

Thing is, that’s not why I placed dollars with them. If their commercial growth business case fizzles, I’m out. There is not really much else to bet on.

Their position in my portfolio will remain 3rd tier, and will not improve unless they show some serious growth from all of the potential in their products.

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