Palantir, co-founded by Peter Thiel of PayPal fame in 2003, made its highly anticipated public debut on September 30, 2020. Despite its initial success, the stock has recently dropped to near its IPO price. In this blog, we will take a closer look at what Palantir is and its revenue streams.
A brief overview of Palantir Technologies
The company's name is derived from the "seeing stones" featured in J.R.R. Tolkien's "Lord of the Rings" books, which are used for communication and to view events from any part of the world. Palantir specializes in deep data analysis, allowing users to obtain detailed information on individuals with just a name and license plate number. The software performs a comprehensive search of criminal, financial, medical, communication, and intelligence agency records related to the target.
Palantir's technology was instrumental in tracking COVID-19 infections, medical supply chains, and predicting outbreaks in pandemic hotspots. Essentially, Palantir can be viewed as a search engine designed for in-depth analysis of petabytes (millions of gigabytes) of data.
Key Founders and Their Backgrounds
Palantir was founded in 2003 by a group of individuals with diverse backgrounds, including entrepreneurs, venture capitalists, and mathematicians. The company's co-founders are Peter Thiel, Alexander Karp, Joe Lonsdale, Stephen Cohen, and Nathan Gettings.
Peter Thiel, the most well-known co-founder, is a billionaire investor and entrepreneur who co-founded PayPal and was an early investor in Facebook. He also founded Thiel Capital, a venture capital firm, and is known for his support of conservative political causes.
Alexander Karp, Palantir's current CEO, holds a law degree and a Ph.D. in social theory from the University of Frankfurt. Before co-founding Palantir, Karp worked as a researcher at the World Bank, and as a consultant for McKinsey & Company.
Joe Lonsdale, who left the company in 2009, is a serial entrepreneur and venture capitalist. He is a co-founder of the venture capital firm 8VC and has invested in a number of successful startups, including Addepar and OpenGov.
Stephen Cohen, who also left the company in 2009, has a background in finance and worked at Blackstone Group before co-founding Palantir. He now runs his own investment firm, Point72 Asset Management.
Nathan Gettings, who left the company in 2016, is a software engineer and was responsible for developing Palantir's initial prototype. He went on to co-found the drone company, Skydio.
Despite their different backgrounds and areas of expertise, the co-founders shared a common goal of creating software to aid government agencies in data analysis and intelligence gathering. Palantir's software has since been used by various government agencies and private companies for a range of purposes, from counterterrorism to tracking supply chains.
Palantir's Core Technologies
Palantir has developed cutting-edge software that enables organizations to solve complex problems using data. Its main products are:
Gotham is an AI-enabled operating system used by government institutions to analyze counter-terrorism and other attacks. It connects vast amounts of near real-time data and presents them in a single view, enabling quick and confident decision-making. Gotham has simplified complex data for global defense agencies and disaster relief organizations, providing access to the latest event information while accounting for global trade offs.
Foundry is an end-to-end solution for decision-making that connects analytics, data, and business teams to a common foundation. Most Foundry users are commercial clients such as Fiat Chrysler and Airbus. The software integrates data in hours, enabling organizations to make better decisions and act swiftly. It captures decisions and transformations in real-time and feeds them back into the originating system.
Apollo manages and deploys Gotham and Foundry, providing a single control layer to coordinate security updates and platform configuration to ensure critical systems constantly operate.
Palantir's business model involves acquiring, expanding, and scaling. After acquiring a client, the company provides system implementation for a low cost or free. Once the client's revenue exceeds $100,000 annually, Palantir expands the implementation to identify the client's challenges. Scaling occurs after complete implementation and configuration, allowing clients to add their software to Palantir's platform.
How Does Palantir Make Money?
The company sells its data-mining platforms to governments and corporations to prevent attacks and track infectious diseases, and generates revenue through its Foundry, Gotham, and Apollo products.
Palantir's customer base expanded by 66% in Q3 2022 compared to the same period last year, with the addition of 33 new customers. The company's U.S. commercial revenue grew by 53% YoY in the quarter. However, due to the confidential nature of Palantir's work, the details of its contracts are often undisclosed as parties involved are required to sign non-disclosure agreements.
According to the report, Palantir surpassed analysts' revenue expectations, generating $478 million compared to the expected $470 million.
Assessing Palantir's Investment Potential
Palantir projects revenue to reach $9 billion by 2026, supported by its estimated $119 billion total addressable market (TAM) and projected annual revenue growth of 30% or more through 2025. However, Palantir's latest earnings call led to a mixed earnings report that caused more than 11% of investors to sell-off, demanding more profitable growth. The tech industry has seen a rotation away from growth stocks, contributing to Palantir's significant decrease in trading value. Despite controversy surrounding the company's advocacy for surveillance and its use in identifying working illegal immigrants for deportation, Palantir's unique product serves various clandestine agencies and lucrative government contracts. In conclusion, while Palantir could be a good long-term investment, it involves a level of risk and requires the investor to overlook the company's questionable practices.
