Palantir is among us and there’s nowhere to hide if you’re a terrorist or money launderer, but how does the company make money, and should you invest?
Palantir (NYSE: PLTR), co-founded in 2003 by Peter Thiel of PayPal fame, went public on September 30, 2020, and its stock price has almost doubled since that time, as of May 11, 2021. The company, aside from being highly controversial and in business for over 17 years, has yet to turn a profit, so let’s examine how Palantir makes money.
What is Palantir?
Palantir is named after the magical crystal ‘seeing-stones’ from J.R.R. Tolkien’s “Lord of the Rings” books, which are used for communication and to see events in any part of the world. The company specializes in deep data analyses; what does that mean? It means, for example, that to get detailed info on someone, all you would need is a name and license plate number and Palantir does the rest. It performs a deep search of all criminal, financial, medical, communication, and clandestine agency records on the target.
The company’s tech helped locate Osama bin Laden in 2011 and is being used to trace COVID-19 infections, track medical supply chains, and even predict outbreaks in pandemic hot zones. Think of the company as a search engine for deep analysis of petabytes (or millions of gigabytes) of data.
Palantir’s Business Model
Palantir is split up into three products: Gotham, Metropolis, and Foundry. Gotham is used by counter-terrorism analysts in the United States Intelligence Community (USIC) and United States Department of Defense (DOD). Metropolis is used by hedge funds, banks, and financial services firms while Foundry is used by commercial clients like Merck, Airbus, and Fiat Chrysler. Palantir’s business model has three phases: Acquire, Expand, and Scale.
In the acquire phase, the company offers initial implementation at little or no cost to the new customer and the customer is considered to remain in this phase if its revenue is less than $100,000 in the respective year. In the next stage, Expand, Palantir continues to further expand the implementation, pinpointing specific pain points and challenges; this phase is entered once revenue from the customer exceeds $100,000. The customer enters the scale phase once everything is implemented and configured and the client adds their own software to sit atop Palantir’s platform. According to the company’s Q1 2021 report, Palantir has accelerated growth in all three phases of its business model.
How does Palantir make money?
Palantir currently has 149 customers, as of its Q1 earnings in May 2021. The company’s government clients account for 61% of its total revenue, according to its Q1 financial report. The same report also showed that Palantir exceeded analysts’ expectations for revenue by making $341 million versus the expected $332 million; additionally, the company’s commercial revenue is up 49% year-over-year and its government revenue is up 83% in the same period. Its contracts are highly secretive due to the nature of its work, and many of the players are required to sign non-disclosure clauses in their deals.
What’s next for Palantir?
Palantir continues to improve on its platform; its latest is the Titan release of Gotham, which offers improved performance, more customized views, and AI integration. Upon its inception, the company didn’t really have a sales team as its products were priced at a level where its leaders assumed a CEO would need to pitch. This view has changed recently as Palantir now has a sales team, which has led to more efficient data management and sales output.
Is Palantir a good investment?
Palantir estimates that its total addressable market (TAM) is roughly $119 billion and some analysts project revenue to reach $9 billion by 2026. It’s on its way there as the company projects annual revenue growth of 30% or more for 2021 through 2025.
The highly secretive company is controversial as it is an advocate of greater surveillance since it aids in its capabilities; additionally, its software has been used to identify working illegal immigrants to aid in their deportation.
That being said, the company has a unique product that no doubt serves various clandestine agencies and government contracts are often very lucrative. Ultimately, I feel that it’s a good long-term addition to your portfolio, but only if you don’t mind turning a blind eye to the company’s shady dealings.
MyWallSt operates a full disclosure policy. MyWallSt staff currently hold long positions in companies mentioned above.