US As A Leading Variable:
The US, throughout history is known for their atomically engrained culture of entrepreneurialism, and creativity. As someone from the UK – based in London – I am incredibly envious of the cultural spirit that is so deeply rooted within the subconscious minds of Americans. This is despite the fact that the US cultural wars are incredibly fierce – there STILL is a beaming light of innovation and optimism in regards to agility and technology.
Organisations within the US, are exceptionally good at becoming agile & reactive, when times become tough. This is why throughout history, the US has experienced a wave of radical innovations, in which fundamentally changed the course of the world. Some of these are good innovations, whereas some – namely the carcinogenic digital products – perhaps are not so beneficial.
Some noticeable historical innovations, led by the US includes:
- The Internet, in which was developed from the technical foundation laid by the Advanced Research Projects Agency Network (ARPANET), which was established by the United States Department of Defence’s Advanced Research Projects Agency (ARPA).
- The radar, in which was developed by the Americans and thus given to the British: History shows us that during times of war, the most important innovative breakthroughs succeed. One that is particularly important was the use of the radar. The radar was a fundamental innovation that transformed Britain into a technological superstar during WW2. Britain, before the use of the radar, were losing against the Nazis. It was almost inevitable that the Nazis would invade the small island, and win the war. This was until the last minute introduction of the radar, in which totally changed the course of the war. To explain further, there were serious predictions during WW2 that Britian would lose against the Nazis. In the looming battle between world powers, the allies lagged far behind the enemies in what Winston Churchil described as the “secret war”, or the race for the most powerful technologies. Germany had new submarines called U-Boats in which threatened to dominate the Atlantic, and strangled supply chains to Europe. The planes of the Nazis were ready to disseminate Britain, outclassed those held by the British. And, the horrific discovery of nuclear fusion, put Hitler within reach of a weapon with almost unfathomable power. The enemies were winning. The radar changed this. In July, Hitler attacked. His generals anticipated the Luftwaffe, which had twice as many planes as the RAF, would achieve air superiority in two to four weeks. Hitler’s generals developed plans for a land invasion of Britian, in which would follow the victory in the air. This victory would never come. British radar would detect enemy aircrafts before they neared the costs. This intelligence enabled Britain to concentrate their limited forces against each wave of attack. One German bomber pilot wrote: “if there were any more missions like that, our chances of survival would be nil”. Two days later, Hitler postponed the land invasion of Britain. This was Hitlers first loss of the war. Fundamentally, the radar totally changed the direction of the war. The radar was one of the most influential reasons as to why Britain won the war.
The point being is that the US is a leading variable in regards to technological adoption and innovation. The US leads, and often other nations too follow behind.
CTO Sankar Commentary:
In accordance with CTO 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.
We can be confident within the fact that if Palantir US Commercial revenue is strong, this shall be experienced too elsewhere within the future.
In fact, we even have a hint from the CEO in regards to US Commercial growth, as he noted that Palantir is growing exponentially within this department.
“Palantir is growing like a weed in the US. Our products are succeeding,” Karp said in an interview with Bloomberg Television that will air Wednesday. Palantir, which was co-founded by billionaire Peter Thiel, is a Colorado-based technology company with a market value of about $17 billion.
The point being, if this growth is true, this shall verify our thesis in regards to Palantir Thriving Within Chaos, commentary from management in which has been reiterated constantly throughout 2022.
Revenue Is Irrelevant:
Revenue for Palantir, must not be the sole metric looked at when judging their growth and fundamental improvements as a company. For Palantir, based upon their unique sales cycle, this means that revenue – despite an increase within client base – will not show up instantaneously.
Palantir has a sales cycle of:
During the acquire phase, this is when Palantir achieves initial contact with the organisation, and thus a pilot test continues. This initial phase can actually take upwards of one year, in accordance with commentary from management. However, there is reason to assume that this sales cycle is reducing within time taken. Regardless, the point is that Palantir clients do not show upfront revenue straight away. In fact, it can take multiple years before substantial revenue is achieved.
“The length of our sales cycle, from initial demonstration of our platforms to sale of our platforms and services, tends to be long and varies substantially from customer to customer. Our sales cycle often lasts six to nine months but can extend to a year or more for some customers. Because decisions to purchase our platforms involve significant financial commitments, potential customers generally evaluate our platforms at multiple levels within their organization, each of which often have specific requirements, and typically involve their senior management.”
Now, with knowledge of this, it is clear as to why judging revenue alone is not sufficient for an analysis of Palantir. The reason as to why is because, Palantir new customers do not instantly produce revenue, based upon their unique sales cycle.
Instead, judging customer growth is far more logical, for analysis of the company success.
To highlight this point, I want to showcase the following example:
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 worth $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.”
Within this case, Palantir partnership originally started at $226K in value (2010 – 2013), however rose dramatically upwards to over $91.5M in value within 2021. This indicates not solely the utility of the platform, but also the ability for initial customers to grow into large contracts within a multiple year timeframe.
As noted within prior quarters:
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 is time that the efforts of the sales force, and shown clearly to have a material impact upon the business.
If anything, it is optimistic that Palantir achieved $1B in revenue, without a sales force. However, if Palantir wants to elicit more hypergrowth within the future, then an increase within customer growth is required. This shall be mainly driven by the sales team.
Net-dollar retention rate is a vital metric in terms of understanding the stickiness of a set product solution. Net dollar retention (NDR), measures how much your annual recurring revenue or monthly recurring revenue (MRR) has grown or shrunk over time.
NDRR shows how much consumption of the product is occurring over time with existing clients. This is very important for Palantir, in order to keep the flywheel spinning.
Within the case of Snowflake, the organisation has a net-dollar retention rate of 178%, indicating their stickiness as a company.
When comparing Palantir to Snowflake in regards to NDRR, a clear trend is apparent:
Within the case of Snowflake, the organisation has a net-dollar retention rate of 178%, indicating their stickiness as a company. Whereas, for Palantir, the organisation has a net-dollar retention rate of 124% within Q1. This is in comparison to 131% for the FY2021.Fundamentally, this figures needs to improve, as this is a core part of the investment thesis for Palantir. This figure increasing, indicates the increased consumption of the product over time, by existing clients.