Piper Sandler Bullish On Palantir:
Deep Dive Of Governmental Business:
Piper Sandler Bullish On Palantir:
Piper Sandler says, “Palantir should continue to see growth in its U.S. government business as it broadens its footprint across agencies and as its largest customer (Defense) is expected to grow further”. The investment firm state how, Palantir has gained more traction with agencies beyond defence, such as VA and DOE, which will provide ongoing upside.
Piper Sandler mentions how, there are detailed contracts in which are pointing towards expanding US Governmental USG traction. Piper Sandler recently have analysed all of the known USG contracts, and noticed broadening traction among Governmental agencies, beyond Defense and into agencies like the Department of Veteran Affrairs, and Department of Energy. Piper Sandler expect this to drive “10-20% annual USG growth for the next few years”.
Interestingly, Piper Sandler say how the DOD remains the largest US Government customer. However, this is followed closely by Health & Human Services, followed by Department of Homeland Security, Treasury, Veteran Affairs, Department of Energy, and the Department Of Justice.
- DOD
- Health & Human Services
- Department of Homeland Security
- Treasury
- Veteran Affairs
- Department of Energy
- Department Of Justice
Piper Sandler interestingly mention that, COVID was a major catalyst for Palantir, and this is going to have “long-term benefits”. This is in opposition to other investment firms whom state that Palantir experienced “one-off” benefits related to COVID, and now these benefits will no longer be recognised. Piper Sandler however state that, due to the COVID catalyst, this has majorly benefitted Palantir across the Government. This perhaps relates to Palantir’s stickiness as a software solution.
“Key government agencies, such as the CDC, NIH, FDA, and Air Force, as agencies rapidly adopted technology to track cases and resources during the pandemic. These initial use-cases likely acted as a catalyst for further adoption; for example, Air Force expanded its contract to include broader operations efforts.”
Piper Sandler successfully demonstrates the utility of Palantir’s software solution, and the fact that Palantir has a sticky product offering. “PLTR has maintained long-lasting relationships with government customers. PLTR has maintained relationships and contracts with the Army, Navy, U.S. Special Operations Command, CDC, ICE, and FBI for at least 10 consecutive years each. We believe these long-lasting partnerships demonstrate both the usefulness of PLTR’s platform and high switching costs once embedded.”
Piper Sandler state that Palantir is a high-growth company, with a rapidly expanding customer base. Through the ramping sales force, Sandler believes that Palantir can accelerate commercial adoption further, and “stable growth” among Governments is to be expected.
Briefly, within the exclusive report gained by Darntons, Sandler states how there are risks associated when it comes to Palantir. This includes, high customer concentration, competition and security.
Piper Sandler provided a brief outline of Palantir stating that the company “builds data analytics and AI platforms to optimise operational decision-making”.
Deep Dive Of Governmental Business:
Piper Sandler mentions how, Palantir should continue to see strong growth in its U.S. government business as the requested discretionary budgets for the Department of Defense are expected to increase 5% in FY2022 and another 4% in FY2023.
Sandler estimate that of the 44% of revenue Palantir gains from the US Government, it is estimated that at least half of this is generated from the DOD. “It also demonstrated the effectiveness of its data platforms to agencies such as the FDA, NIH, and Air Force in 2020, which could provide it opportunities to grow in future years as it maintains these platforms and expands its partnerships with them.”
“We analyzed PLTR U.S Goverment contracts in an effort to understand traction among various agencies. We found that a substantial portion of U.S. government revenue is undefined (subcontracted through contracts with other companies) or classified (likely a large portion of DOD business); this undefined revenue was 63% in 2021. PLTR expanded the number of contracts with top level departments to nine in 2021, up from six in 2019, according to the data, suggesting a broadening of traction across various government departments.”
The main takeaways Piper Sandler found were that:
1) likely over half of PLTR’s U.S. government revenue comes from the Department of Defense,
2) PLTR saw significant tailwinds and was able to expand its business with some U.S. agencies during the COVID-19 pandemic, and
3) PLTR has had long-lasting relationships with its largest U.S. government customers
“PLTR has been awarded contracts by DOD agencies for licenses to its Gotham platform; providing a data platform to coordinate decisions, resources, and joint operations; testing end-to-end approaches to AI for defense use cases; and examining data and developing algorithms”.
Importantly to note, Darntons found that high DOD exposure could be very positive for Palantir. This is because, DODs requested discretionary budgets are expected to increase 5% in FY2022, and then a further 4% in FY2023.
Piper Sandler also believe that, the on-going war currently could be a major catalyst for the DOD to improve technologies for the future. Interestingly, Piper examined the budgets in depth and found that, there is a heavy emphasis on AI, LM, IT and software programs.
Piper Sandler believe that, the amounts for these requested items will continue to increase in FY22 (+27% y/y), and FY2023 (+12% y/y). Piper proclaimed that, new requests in FY2022 that weren’t included in FY2021 include ~$212M for AI and ML research and ~$83M for the Tactical Intel Targeting Access Node (TITAN) program, which PLTR has been selected to compete for.
“In 2020, PLTR’s U.S. government (USG) revenue grew 91% y/y, from $248M to $474M. However, we estimate PLTR’s revenue from the Department of Health and Human Services (HHS) grew 892% in 2020, from ~$6.4M in 2019 to ~$56.9M in 2020, and from 3% of 2019 USG revenue to 12% of 2020 USG revenue”
There is major evidence to state that Palantir partnerships grow considerably over time. For example, within the DOD there was a recent expansion of the partnership with the Air Force. There was previously a small contract with the Air Force from 2010-2013, which consisted of four contracts wirth $226K each. However, this scaled majorly within the past few years. The data shows that in April 2020, Palantir signed a contract to license Gotham platform to the Air Force for six months, costing over $2M. Following the pilot program Palantir signed two contracts with the Air Force worth nearly $20M to provide the agency with COVID systems. “By 2021, the partnership grew to a two-year,
$91.5M contract in which PLTR was to provide a data platform for the Air Force to manage
resources for its COVID-19 response and coordinate decisions for joint all-domain operations.”
This should indicate the true scale available with Palantir.
Palantir has a range of long lasting relationships with the Governmental agencies.
• Navy: 2008 – Present (14 years)
• Army: 2009 – Present (13 years)
• U.S. Special Operations Command (USSOCOM): 2009 – Present (13 years)
• Centers for Disease Control and Prevention (CDC): 2010 – Present (12 years)
• U.S. Immigration and Customs Enforcement (ICE): 2011 – Present (11 years)
• Federal Bureau of Investigation (FBI): 2012 – Present (10 years)
• Department of Justice (DOJ), Other: 2012 – Present (10 years)
• Securities and Exchange Commission (SEC): 2016 – Present (6 years)
• Food and Drug Administration (FDA): 2017 – Present (5 years)
• Internal Revenue Service (IRS): 2018 – Present (4 years)
• National Institutes of Health (NIH): 2018 – Present (4 years)
• Air Force: 2020 – Present (2+ years)
In addition to these long lasting relationships, Palantir is still signing new contracts with the Department of Veterans Affairs, and the Department of Energy within 2021. These amounted to $19M, and $14M respectively per-year.
It seems illogical to conclude that these long lasting relationships will suddenly break-off. Instead, according to Piper Sandler, these relationships are likely to show the overall stickiness, and excessive integration that Palantir offers. Unless something majorly wrong occurs within the Palantir OS, for example an unexpected issue, it seems illogical to assume that these software solutions will suddenly become removed.
