Palantir builds software that allows organizations integrate their data, their decisions, and their
operations into one platform. Their software empowers entire organizations to answer complex
questions quickly by bringing the right data to the people who need it.
Putting it as simply, the company creates software for companies to analyse data and create
simulations which help companies or governments make decisions which will help them strategize.
For example they take all the data regarding COVID infections and help governments predict how it
might spread which will allow them to distribute vaccines to the areas that will reduce the spread of
the virus the most.
Palantir Products and Business Model
Palantir has three major products:
- Gotham – This integrates and transforms data, regardless of type or volume into a single, coherent data asset. As data flows into the platform, it is enriched and mapped into meaningfully defined objects — people, places, things, and events — and the relationships that connect them. Gotham is used by counter-terrorism analysts in the United State Intelligence Community (USIC) and United States Department of Defense (DOD).
- Metropolis – is software for data integration, information management and quantitative analytics. The software connects to commercial, proprietary and public data sets and discovers trends, relationships and anomalies, including predictive analytics. It is used by hedge funds, banks, and financial services firms
- Foundry – is a platform that reimagines how people use data by removing the barriers between back-end data management and front-end data analysis. With Foundry, anyone can source, connect, and transform data into any shape they desire, then use it to take action. It is often 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.
Is Palantir Profitable
Palantir is currently unprofitable, however its net loss has been reducing gradually for the last couple of years which is as a result of higher revenue and a lower operating cost. However, this wasn’t the case in 2020 as businesses were impacted all around the world which also affected Palantir’s business. We would also like to note that Palantir would have been profitable in the last quarter of 2020 and q1 of 2021 but they made a huge investment in form of stock based compensation to employees which also taxed to the tune of 18.9million dollars. This drove the operating costs up. A scenario where the employee based compensation wasn’t taxed, Palantir would have returned an earnings per share (EPS) of 0.06 in the last quarter of 2020 and this makes us believe profitability is not far off from Palantir.
How well does Palantir manage cash
Palantir currently has a net cash flow of $2.4billion for Q1 of 2021 and this is a 100% increase year on year. This shows a very strong cash position from the company and it also tells us that the company is able to meet its day-day obligations.
Where does Palantir get their revenue
Palantir had a revenue of $1.09billion for full year 2020, which was a 45% increase of its revenue in 2018. We believe this revenue would have been significantly higher if not for the disruptions caused
by the Covid-19 Pandemic. Palantir also had a revenue of $341million for quarter 1 of 2021 and this
was 49% increase yoy.
Palantir’s revenues currently come from 149 customers with government clients accounting for 61%
of its total revenue according to its Q1 financial report. However we can also see that its commercial
revenue is also increasing as it experienced a growth of 49% yoy in q1.
This is made possible through the partnerships it is forming among in the commercial world, an
example of such partnerships is its partnership with IBM to make its service more available for more
How far will Palantir grow and will it be profitable in the long term
Palantir estimates that its total addressable market (TAM) is roughly $119 billion with it’s revenue
projected to reach $9 billion by 2026. We believe It’s on its way there as the company projects
annual revenue growth of 30% or more for 2021 through 2025. Also considering the fact that the
company has a unique product that no doubt serves various clandestine, Government contract
which are very lucrative, We believe this projections are not far-fetched.
Is Palantir Overvalued
Palantir has a Price to earnings (P/E) ratio of 0. This is because the company is currently unprofitable.
However, It has a Price to book (P/B) ratio of 23.65 , A Price to sales (P/S) ratio of 39 and a Price to
cashflow ratio (P/CF) of 17.56 . The software industry has an average P/E ratio of 100.80, P/B ratio of
14.06, P/S ratio of 10.05 and P/CF ratio of 26.15.
These ratios with an exception to the price to cashflow ratio show that Palantir is more costly than
the average software company and that it is overvalued in respect to its industry