The Sales Force Is SO SMALL:
Long Term Vision Is Key:
Palantir Has The BEST Software:
SBC Is Down:
Governmental Cycles Have Been Experienced Beforehand:
Commercial Growth Is Excellent:
The Sales Force Is SO SMALL:
Alex Karp mentioned within the Palantir Q&A that the companies sales force still equates to around 1% of the overall employee headcount.
In comparison, Snowflake have a sales and marketing team of 2,247 individuals. In fact, this is close to half of their overall employee headcount for Snowflake, which equates to 4,559 individuals.
Alex Karp mentioned on the earnings call that for Palantir, they currently only have 41 individuals within the company who are fully trained to sell the product. Whilst Palantir have pledged in the past to increase their overall sales team, this will take time. On average it takes around 9 months for an employee to become fully equipped to sell the Palantir software solution.
Therefore, from an optimistic perspective, the Palantir salesforce is still a bottleneck for the company. In the future, as the sales ramp up occurs, Palantir should see results comparable to other high growth software companies.
It can be fairly stated that in the past Alex Karp’s arrogance associated with the perceived lack of purpose for a sales team has damaged the company, and perhaps has given market share to other vendors. But, fundamentally the team recognised this error, and thus have made changes to address it.
A sales force ramp up for a complex software solution will take time, and often individuals who are selling the product must become more than sufficient in using the software solution. This takes time and investors must be patient.
In the end, it is highly unusual for an 18 year old software company to generate such growth, whilst also having a sales team of less than 1% of the overall headcount. Investors should be optimistic for the next year, in which the sales force ramp-up will have become more mature.
Long Term Vision Is Key:
Alex Karp is an outsider CEO. In fact, one may describe him as iconoclastic. This means that, Alex Karp is not a CEO who wants to please Wall Street or the media.
Investors within Palantir must understand that this company is highly unconventional. Unlike the majority of companies who are centred on pleasing quarterly guidance reports, Palantir is focused on revolutionising enterprise software, and totally disrupting the way data is used.
It can be frustrating for investors to experience disappointing quarters, measured via metrics used on Wall Street, Palantir is focused on building technology in which will transform society.
Alex Karp has mentioned many times the necessity for short term investors to sell their stake in Palantir – if these investors are not on board with the long term vision. Often, investors fail to understand what a long term vision actually means.
However, in the case of Palantir, it seems that the company is playing the software game with an outlook far proceeding 5 years. This should be music to the ears of investors who proclaim that they adopt a long term vision.
Palantir Has The BEST Software:
Palantir just announced that they were integrating the OpenAI solution into their product. This is part of a future initiative to shape the way low-code/no-code is experienced.
As stated within our previous articles, “William Summerlin is an analyst at ARK who solely focuses and specialises on AI technologies. Will mentions how, he is most excited for the opportunity for foundation models.”
Foundation models work by training a single huge system on large amounts of general data, then adapting the system to a new problem.
This interlinks with the future of AI in which refers to AI being flexible, reusable models in which can be applied to just about any domain or industry task.
IBM mention how, “the next wave of AI looks to replace the task-specific models that have dominated the AI landscape to date”. The future is models that are trained on a broad set of unlabelled data that can be used for different tasks, with minimal fine-tuning.
Foundation models however are not trivial, and results within the real world have already been seen. For example, the first glimmers of foundation models have been shown within GPT-3, BERT or DALL-E 2.
One can input a short prompt, and the system then generates an entire essay, or complex picture based on set parameters – even if it was not trained on how to execute that image or task explicitly.
The model is used to create articles, poetry, stories, news reports and dialogue using just a small amount of input text that can be used to produce large amounts of quality copy. GPT-3 has over 175B parameters and can generate any text including guitar tabs, or computer code.
“Others have found that GPT-3 can generate any kind of text, including guitar tabs or computer code. For example, by tweaking GPT-3 so that it produced HTML rather than natural language, web developer Sharif Shameem showed that he could make it create web-page layouts”.
This new partnership, whilst many overlooked, just shows the innovative inventions occurring at Palantir. Eventually through the use of these OpenAI language models, in Foundry, users with NO CODING EXPERIENCE can SPEAK to AI resulting in code being written. Or, users can WRITE IN NATURAL LANGUAGE, and this can be translated to CODE.
This is a highlight of the utter superiority of the Palantir software solution.
Furthermore, it is no secret that Palantir has the best software solution. Unlike Snowflake, in which offers a thin set of tools, Palantir has created a product in which brings users to become more efficient and productive at a scale never seen before.
The solutions Palantir has built take YEARS to replicate. This was indirectly stressed by the CEO within the latest earnings call.
SBC Is Down:
Many investors have been deeply concerned in regards to Palantir’s recent announcement of hiring, and the potential for excessive SBC expenses.
However, interestingly during the latest investor call, Palantir actually decreased SBC expenses for another consecutive quarter:
“Stock-based compensation expenses decreased by $87.0 million, or 37%, for the three months ended June 30, 2022 compared to the same period in 2021”.
Whilst, yes, there are clear benefits towards incentive alignment tools between employees and investors, within Palantir’s case, SBC tools have already been very extreme. Thus, as an investor, the necessity to see this come down is key.
Also, this is in line with the wording of CEO Alex Karp, after he mentioned back last year that SBC expenses would reduce dramatically. Palantir SBC costs are now entering into the normalisation period.
Governmental Cycles Have Been Experienced Beforehand:
This is by no means the first time that Governmental cycles have hurt revenue growth of Palantir. Whilst this is unfortunate for those who did not understand the length of these cycles, there is optimism associated with Palantir & their high likelihood associated with gaining contracts within the Governmental sector once spending is more clearly back into fruition.
Palantir management expressed their frustration for this matter within the Q&A.
COO Sankar & CEO Karp said that this is “frustrating”, and prior to DPO Palantir has experienced similar situations. Namely, flat or even negative years of Governmental spending.
Whilst not ideal for investors who are judging the company by Wall Streets’ metrics, overall the long term Palantir has exceeded 30% CAGR. This is despite damages from cyclical spending hurting the company over a period of quarters.
Furthermore, Palantir is now competing for large contracts. On this scale, there is often political issues, and excessive time spent associated with choosing a software vendor.
One example of this, in the UK, is the Palantir & NHS $400M deal. This is no trivial figure, and one must expect excessive amounts of rigorous discourse, trials and debates associated with choosing a vendor for the contract officially.
This is why it is vital that the commercial segment dramatically outpaces the Governmental segment eventually. And, to the applaud of Palantir, the commercial segment is growing rapidly – specifically in the US.
The Palantir Global Defence Lead expressed his concerns with the Government cycles recently:
“There are major similarities between larger corporations and Governments. Doug Philippone expressed his view on the bureaucratic nature of larger companies, in which can often effect the procurement process within software integration.”
“The Palantir Defence Leader expressed his concern with the Governmental acquisition processes. There is so much friction associated within Governments and these acquisition processes can make it very hard for companies to “break-in” successfully. However, Palantir has an evident edge within this sphere, because often Palantir is competing with PowerPoints, or CIOs whom are showcasing a product they hope to build within the next few years. Doug mentioned how these CIOs, and PowerPoints showcasing a product never end up succeeding, and if they do, often the cost associated is 10X greater.”
Commercial Growth Is Excellent:
The US revenue growth is by far one of the most vital metrics to understand when it comes to Palantir.
According to COO Sankar, Palantir has focused their efforts over the last 2 years on, “can we get it to work really well in one place” – which is the US.
In other words, Palantir has focused their efforts into the US commercial growth, and then will expand the same strategy globally once this US strategy has been crystallised.
There is no doubt that the US commercial growth is exponential:
- 90% Q2 2021
- 10% Q3 2021
- 132% Q4 2021
- 136% Q1 2022
- 120% Q2 2022
This is a very positive sign, especially considering the recession in why US companies are facing.
To summarise, whilst in a recession, there is still exponential growth occurring in the US commercial spending for Palantir. This is a positive sign.
This growth is expected to continue. Morgan Stanley stated within a recent initiation note that companies are looking towards deflationary technological forces to cut costs and save time.
“Persistent inflation in areas such as labor, supply chain/procurement, and energy give rise to transformational investment across industries.
While cyclical forces tend to deter investment in an uncertain macro environment, we believe structural changes in demographics, energy policy and security, and an aging capital base make technologies focused on cost reductions and productivity more valuable.
Focusing on stocks that enable this productivity and cost reduction through automation, efficiency, or their own declining cost curves while maintaining strong barriers to entry and attractive equity risk/reward.”
Morgan Stanley believes that in consideration of the higher cost of capital, and higher cost of labour, companies are now looking towards technology to reduce costs and save time.
“Cost pressures should make companies accelerate investments in automation and productivity-enhancing technologies. Many of these technologies are inherently deflationary. “
