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Today I am going to attempt to demystify one of fintwit’s favorites - Palantir the company founded by Peter Thiel and Alex Karp in 2003.
To start, you are probably wondering why I chose “The Eye of Sauron” from the Lord of the Rings which the antagonist Sauron used to search for and track the paths of the ring and ring-bearer Frodo Baggins. The palantíri (the actual spelling from the books) was an all-seeing stone in which a person could communicate visually across middle earth. The only problem was the user didn’t know if it was seeing everything nor did it know if it was in the past, present, or future. So long story short, I used the Eye of Sauron as the cover because it’s a way more badass representation than the stone in my opinion, and essentially does the same thing.
If you have no idea what I am talking about you need to immediately stop reading this article and watch one of the greatest movie trilogies ever created - The Lord of the Rings. (I can guarantee you it will be 100x better than whatever you learn from this newsletter). God speed.
Elevator Pitch Me Palantir
In one sentence: Palantir is a company that builds software allowing organizations, private/public businesses, and governments to integrate data, decisions, processes, into one platform in an effort to answer complex questions quickly.
How Did It Come About?
As stated before, Palantir was created by Peter Thiel and Alex Karp who both went to Standford Law together. They were great acquaintances but also known to challenge each other frequently on their opposing political views with their exceptional intellectual minds. Not too long after school, Thiel created Paypal and one of the biggest challenges the company faced (which almost led them to going under) was cyber fraud. Thiel and his team figured out over time that there wasn’t a simple algo or codable solution because hackers would eventually just figure out another loophole to work around the patch. What Paypal then introduced was a human component in the process of determining if a transaction was legit and millions upon millions of company dollars were saved and the rest is history. It is perceived that many of the same data systems and software engineering feats used in PayPal are what gave Thiel and Karp the juice to start Palantir. It has been made very clear that Palantir’s software isn’t simply a cookie-cutter code and even in their S-1 stated “rather than relying on algorithms that inhibit accountability, our software empowers humans to make informed decisions”.
Palantir is steep in government contracts and these relationships have been steadfast in its main sources of revenue. To name just a few are the CIA, DOJ, NSA, Federal Aviation Administration, United States Special Operations Command, CDC, U.S. Army, and the list goes on.
The first corporate contract was with JP Morgan in 2010 referred by the NYPD. Palantir helped J.P. Morgan with all types of fraud problems, cyber security, and unwinding its distressed mortgage portfolios (too just name a few) which has helped them save hundreds of millions of dollars for the bank.
Palantir is specialized to each client it partners with. When a contract is signed forward engineers go to that entity to find out the best way to optimize, integrate, and expand the client’s needs. This is why it’s safe to say nobody knows whether to classify it as software, consultant, or both.
Palantir believes that data is the solution to everyone’s problems. The more data is accessible and monitored whether it be images, spreadsheets, records, keywords, search histories, literally every data point under the sun, etc. the more probable the client can make more money or be more secure.
Palantir doesn’t like to flaunt what clients it has and more importantly clients don’t want others to know they are using Palantir. Why? Think about it this way, if Walmart was using Palantir to optimize their strategy in taking on Amazon head-on would they want Amazon to know? Probably not.
Many have attributed Palantir to being a big player in unraveling Bernie Madoff’s Ponzi scheme and discovering where Osama bin Laden was hiding. We obviously will never know because that information will never be released. However, Bloomberg business noted that Palantir is “An indispensable tool employed by the US intelligence community in the war on terrorism”.
Palantir is extremely difficult to value but by most conventional investing metrics it is vastly overvalued compared to others in its field. The only problem is how do you value a company that is in uncharted territory and in many ways in a league of its own? Regardless, Karp believes it is on track for revenue of $4 Billion by 2025 (estimates are at $1.5 B for 2021).
Palantir (as of Aug 2021) reportedly has around 169 commercial customers but this number could be much higher by the end of the year.
Palantir goes for the “big fish” in terms of contracts. In Q2 of 2021, CNBC reported: “it signed 30 deals worth $5 million or more and 21 deals worth $10 million or more”.
Facts are nice, but what does it DO!
One of the things you will find with Palantir bulls is they find themselves repeating the same things over but not getting to the nitty-gritty of the company. This is because the software itself isn’t on the front page of your cereal box. Any company that is so closely tied with government agencies isn't going to give out top to bottom exactly what they do but I will give my best shot and giving you the rundown.
Again, Palantir is an ever-evolving interface that scales as the program figures out more data sets, and with those data sets are able to optimize, integrate, figure out solutions, and even make predictions for the entity that is using it.
Palantir’s business model has three main steps: Aquire, Expand, Scale
Aquire: In the beginning stage and often referred to as the “pilot stage”, Palantir bears the initial costs to bring in new customers. If the client has less than $100,000 revenue a year then Palantir charges practically nothing to onboard them.
Expand: Once past $100,000 in revenue the software is vertically integrated and identifies the key issue that the client is facing head-on.
Scale: In the scale phase the software has been fully integrated with the client and this is when the client starts to become more profitable, Palantir makes money, and applications begin to be built on top of the platform. The profit from this stage allows Palantir to take on new clients in the acquire stage at a net loss.
Now we are going to get into Palantir’s three main products.
This was Palantir’s first platform that was built for government agencies of all kinds. Again this product was created to ingest mountains of data to uncover hidden patterns and be able to predict/help stop terrorist attacks, tax evasion, crime, disaster relief, etc.
To see Gotham in action here is an amazing example of some of its capabilities:
This is the platform for modern enterprise. In an incredible effort to not repeat myself, Foundry was built for companies to:
a) make more money
b) save more money
c) have more security
d) did I say make more money?
Some of these companies have saved millions and even billions of dollars with Foundry. Too just name a few: Airbus, BP, Fiat Chrysler, and the list goes on. As we know the more data the better, and the more that data is analyzed and dissected the better Palantir operates for their client. In many ways like Gotham, Foundry creates “a central operating system for their data, and it is designed to scale with increasing complexity, meaning it will be able to support these companies as they grow while powering data-driven decision making from the outset”.
Im going to let Palantir’s website do the talking…
Apollo is the operating system for continuous delivery in which the platform “provides a single control layer to coordinate the ongoing delivery of new features, security updates, and platform configurations, ensuring critical systems stay up-to-date and operational 24/7”.
Long story short, Apollo manages and safely deploys the Gotham and Foundry platforms and almost acts like a “cloud” like system.
Here’s a good snapshot of what it does not just for Gotham, but also for Foundry.
In an effort to be completely transparent, I am very bullish on Palantir in the long run. I own stock with options and truly believe it is a long-term hold and will take years to play out. I believe that this company is on a fast track for making businesses optimize better, governments protect their citizens better, and everything in between. If you think I am wrong (or right) let me know in the comments below!
Thank you all who read this far and I hope this cleared something up about Palantir for you.
As always I know nothing, this is all my opinion and not financial advice 😊
Have a great weekend! See you for Tuesday’s newsletter!
If you know someone who would be interested in learning about Palantir or is a shareholder of Palantir please consider giving this newsletter a share! (every share helps me grow this mini business and motivates me to work harder for the next newsletter). Thank you to all those that share!
Before you go
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