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: https://www.cnbc.com/2020/08/25/palantir-ceo-rips-silicon-va…
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.