Palantir (NYSE: PLTR), co-founded in 2003 by Peter Thiel of PayPal fame, went public on September 30, 2020, and its stock price has risen a staggering 166% since then. The company, aside from being highly controversial and in business for over 17 years, has just turned 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 the 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.
How does Palantir make money?
Palantir added 20 new customers in Q2, up 13% year-over-year (YoY). The company’s U.S. commercial revenue grew a whopping 90% YoY in the quarter boosted by it closing 62 new deals each of which were valued at more than $1 million or more. Palantir’s 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, so exactly which deals they landed are not always disclosed.
The same report also showed that Palantir exceeded analysts’ expectations for revenue by making $376 million versus the expected $352.3 million.
What’s next for Palantir?
Palantir continues to improve on its platform; its Titan release of Gotham 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.
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Contributing Writer at MyWallSt
David fell in love with the stock market in 2000 after making $30,000 overnight on Techniclone. His favorite stocks today are Netflix, Google, Amazon, and Apple as they are the market leaders in their sectors and are safe long-term investments.