- Letter To Shareholders
- Earnings Call
Letter To Shareholders:
Long Term Vision:
There are a few noticeable points I want to analyse in regards to the shareholder letter for the company.
One point of mention includes Karp’s opening statements of the letter, in which he restates his long term outlook for the company.
“Our commitment to and relentless focus on the long term at times has required patience.”
CEO
Fundamentally, as noted within the past, I do believe that the obsession from Wall Street and the majority of retail investors upon short term metrics and results is dangerous for true wealth generation capabilities. I have noted in the past that within a world of conventionality, the biggest enemy is an unprofitable company in which is investing deeply within the future.
Yet, personally, this I believe is where real wealth generation is created.
Over the past few months, management touched upon their response in regards to alternative software solutions, and the importance of building truly transformative technologies. Whilst alternative software providers create platforms that are minimally viable, and thus fail to create any transformation, Palantir is focused upon creating deep technologies in which are fundamentally stemming from a Zero To One Outlook upon the future.
Within a recent talk by Shyam Sankar at Palantir FoundryCon, Sankar noted the distinction between minimally viable, versus alpha. This is a distinction to represent the deepness and robustness of software solutions, some being thin – yet backed by large sales teams, whereas other are thick – but disregard mostly the necessity for a sales team.
As I commonly note, Snowflake I believe is a perfect example of minimally viable software – in which produces some utility – however is fundamentally not transformative for organisations.
Having a multi decade outlook in regards to the future of a business is a key tenant for true wealth generation.
Sales Force:
A substantial U.S. commercial business, in particular, has emerged in essentially two years, with a fledgling sales force that is still in its infancy and only now taking shape.
CEO
Fascinatingly, Palantir still is within the infancy stages of a sales force. There are very few organisations in which garner $1B within revenue, solely based upon a minimal sales team. In fact, Alex Karp himself, solely was responsible for selling the product up until a few quarters ago.
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.
US Business:
Looking at the US Commercial growth rate, as Alex Karp noted, this is becoming an increasingly important area of the company to analyse. This is because, as noted over the past few months, the US Commercial Business is likely a leading variable in terms of future growth for Palantir.
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.
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.
Exponentiality Since 2018:
Upon inspection of the data, since 2018, the US Commercial Revenue has compounded at a 72% annual growth rate, really representing non linear exponentiality.

Start Small & Monopolise:
Our commercial offering, for years made available to a select group of initial partners and collaborators, is now becoming the default choice for an increasingly broad swath of customers that require both immediate and durable results from their investment in enterprise software.
CEO
What is important to pick out here is the emphasis on “a select group of initial partners and collaborators.” Upon reading this, the notion of “starting small & monopolising” comes to mind.
This monopolisation and expansion has been present within the story of Facebook, at which during inception phases, the company dominated Harvard, and other high quality revenue sources, later to expand nationally, and eventually globally.
Facebook, originally started via the monopolisation of Harvard, later slowly monopolising other “highly respected” colleges in the US. The reasons as to why this is beneficial is not solely due to the easing of friction associated with initial adoption, however also and more relevantly due to Facebook gaining “quality” customers on their platform,
Evidently, if “high status” students at the top universities are using a certain platform, this will incentive adoption for other students in the campus, and eventually around the world. Thus, this was likely a fundamental factor that contributed to Facebook’s early success.
The same is true for Palantir.
Palantir have started via the monopolisation of “high quality” clients. However now, after domination in this area, will move down the value chain to smaller organisations in an attempt to democratise the platform further.
Whilst critics of Palantir associated the small original clientele basis as problematic, at a more nuanced review, one could see that this clientele basis was the highest quality revenue. Therefore, this clearly speaks towards the viability of the software solution, in comparison to other vendors. Now however, as noted, Palantir has expanded into a differentiated phase of growth, in which the company is focusing upon smaller clients in order to derive value for shareholders. This expansion coincides with Palantir’s CEO – Alex Karp – and the commentary regarding an increased TAM, in which moved upwards of $100B, towards $900B as mentioned in a recent interview.
AI Focus:
Our collective focus on artificial intelligence, including the natural language processing capabilities that have recently been made more widely available to the public, is not misplaced.
CEO
As many are aware, Palantir over the past few quarters partnered with GPT in order to democratise low-code / no-code to a whole new level. In past calls, management noted that “we just launched an experimental feature that leverages OpenAI’s GPT-3 to turn natural human language into pipeline logic.”
Thus, this is a method of further democratisation of the low-code / no-code capabilities, in order to garner greater value creation across the organisation.
Moreover, to add further rigour to the arguement of AI & Palantir, interestingly Alex Karp shared a unique perspective regarding the consumer facing AI, versus the use of military facing AI.
The widespread adoption of artificial intelligence in civilian applications will come soon. In the military context, it has already arrived.
CEO
The point evident is that, whilst AI is currently being popularised within the context of the GPT and consumer facing initiatives, Palantir has already been working deeply with artificial intelligence within the context of the military.
Drawing on from the current war within Ukraine and Russia, prior to the invasion, the consensus was that in consideration of Russian economic dominance, and military investments in comparison to Ukraine, consensus pointed towards Russia easily wining the conflict. However, this has not been the case. Fundamentally the reason as to why Ukraine are beating, or have become the dominant player within the conflict, is based majorly on software and the exponential nature of technologies – namely Palantir.
Instead of prior conflicts, in which one would win the war solely based on a few factors:
- GDP
- Military equipment
Now, there is an exponential & non linear nature to warfare, namely software. This dynamic of software fundamentally disrupts the nature of conflict, and the power dynamics apparent.
This is why Ukraine is winning the war – against all odds. It comes down to software.
Therefore, it does not seem illogical to assume within future conflicts, the necessity for alpha generating software can not be more over emphasised. Without it – you loose.
The same thesis applies towards the commercial segment. Without alpha generating software – your company can not remain competitive. Palantir has an advantage within this segment.
Notably, this speaks towards the deeply ingrained competitive moats available for Palantir, in which is best expressed via the usage of Palantir within the context of Governmental agencies across the past 20 years. This use of battle-testing the Palantir software solution has thus led towards an increasingly large competitive moat garnering.
Earnings Call
Geopolitics:
“For the first time, people have recognise the increasing digitisation of warfare, and the central role of Palantir within the world.”
CEO
As reiterated in the past, the use of software today, is analogous to the power in which is yielded by nuclear weaponry. Whilst within the USG, revenue for software barley equates to 1% of overall spend, I believe that within the future an increasingly important emphasis shall be apparent upon truly transformative software technologies.
Palantir, via battle-testing their product within the context of Government for over 18 years, gives the organisation a truly deep and rigorous competitive moat.
After the clear impact Palantir is having upon the Ukrainian war, the US Army General, Mark A. Milley noted that:
“Tenacity, will and harnessing the latest technology give the Ukrainians a decisive advantage. We are witnessing the ways wars will be fought, and won, for years to come.”
The fact that Palantir Technologies has played an undisputable important role within the context of the Russia and Ukrainian warfare, highlights the superiority of the product. At the core, Palantir has transformed Ukraine into a juggernaut – thus yielding capabilities in which makes it possible for the nation to defend – and perhaps even beat, the 3rd largest military force. This is true transformation.
As I have thought about within the past, I believe that this inflection point is yet to be seen within the context of the commercial segment, and thus the military activity is a leading variable in terms of what we shall expect to see within private institutions within the future. The point being is that software is fundamental. Without it, you fail. This is true not solely for the military complex, but also for commercial organisations in the future.
AI, Consumer Facing Versus Military:
“Whilst there is an increasing focus on digitalisation of the consumer internet, the most important aspect of AI is actually on the battlefield. In the last 5 years, Palantir has built the core infrastructure needed to power and train AI algorithms.”
CEO
Alex Karp noted the fact that all nations, specifically based upon the events within Eastern Europe, are now looking into AI. Furthermore, in terms of the private context, these platforms take multiple years to build, prior to even utilising artificial intelligence. AI can not solely be built without an underling platform.
Important questions must be asked: namely, how does one ensure security, and transparency issues are met? The fundamental takeaway, according to Alex Karp, was the fact that Palantir is the precursor for AI.
Interestingly, whilst Silicon Valley has touted the lack of importance surrounding collaboration with the USG, it is apparent through coverage of Palantir that the organisation is garnering a serious – and undisputable – competitive lead, within the context of AI and software. This is primarily due to, as noted, the battle testing of their software within the hardest situations from a military perspective.
The lessons learned from a military context means that Palantir can leverage these insights into the commercial segment. Once again, a method of really deepening competitiveness and the robustness of their software.
Very few, if any other software organisation, has this ability to garner serious competitive moats within the context.
SBC Changes:
“Equity overall, we want to ensure that we align our employees and our shareholders. We plan to keep that alignment”.
David Glazer
David noted that, “SBC is coming down, and has been for the past 6 quarters.”
As noted on Twitter within a conversation with Palantir Vision, I believe that over the past few quarters, Palantir has become increasingly shareholder orientated. This is primarily due to a few main principles: firstly, the use of SBC decline, in conjunction with the reoccurring commentary from management in terms of the value of retail investors.
Palantir is not shy of stock-based-compensation. In fact, the company experienced abrupt levels of SBC solely after their DPO – namely in 2020 Q3. SBC expenses reached upwards of $847M within one quarter alone.
This SBC expense was a one off prearranged agreement, and since has normalised – albeit – still at high levels.
Whilst SBC in excess is a concern for shareholders, there is a silver lining apparent when nuance is applied towards this debate. On one hand, SBC increases the number of shares outstanding, thus diluting current shareholders. This can vastly damage return rates.
However, alternatively, SBC is a method for attracting the most important employees in the world, therefore increasing the probability that success shall occur for Palantir in the future.
A company at the most granular level is solely the collection of individuals towards a set goal. Via this interpretation of a company, it becomes increasingly clear that the way in which humans are incentivised, organised, and structured, is foundational when it comes to success.
For technology and software, there is an exponential trend apparent regarding talent and employees. What can be seen is the following: namely, the top 1% of talent within a set organisation, producing non linear returns in regards to output and productivity. This trend is not apparent in other industries – for example physical labour. However in technology, the top 1% talent globally, literally is responsible for the majority of the value creation.
With understanding of this atomic view of a company, in conjunction with the fact that the top 1% of talent for technology literally produces all of the value, this explains the necessity for SBC.
Whilst I do not want to ridicule the danger of SBC upon returns, there is truth in the fact that in order to attract the best talent, there is a necessity for SBC.
The best talent for companies is an intangible factor that I believe can act as a leading variable in order to predict the future outcome of an investment.
Strategic Interest Within Palantir:
“Software is now part of an existential motion of the enterprise.”
CEO
Reiterating from what Alex Karp mentioned: it is apparent that a shift has occurred over the past 5 years. Notably, there has been a shift away from solely a software sales pitch. Instead, individuals and organisations are recognising the necessity for software as an existential part of the organisations.
To add, it is clear – according to Karp – that Palantir has built “proprietary technology”. Alex believes that this would “take years and years to build”. Thus, this has generated a lot of interest within Palantir.
“Because of this, there is a lot of interest in buying our software, and perhaps even buying us.”
Software within the West is broken. The future of software is not a static 2D analytical dashboard, in which provides some utility, yet fails to transform the company. Instead, the future of software is a 3D ontological model, that allows for simulations, predictions, and thus optimal outcome decisions.
A simplistic quote to successful highlight the role Palantir plays in actually in relation to biology: “it is not the strongest species that survives, nor the most intelligent; it is the most adaptive to change (Darwin)”. Through the Ontological model, and the Operating System of Palantir, organisations have the ability to predict, prevent, and simulate outcomes and events, thus leading to a tremendous advantage.
Fundamentally, traditional software is static, and requires standardisation in order to function. However, this produces no-to-little alpha. Traditional software makes institutions more alike, whereas transformative software makes organisations more differentiated. This is key in order to succeed.
USG Outlook:
“US has continuing resolutions” – there is just a different level of interest in what we provide.”
CEO
Karp went on to state that: “if it is war in the East, or balloons over our society – this is a world in which is dangerous. This world needs AI driven solutions and software, and there is no other company that has focused on this for the past 20 years.”
Interestingly, investment firm 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.
It can be logically stated that in consideration of Palantir’s ingrained work with Governments, and their supernatural product capabilities, Palantir is likely to experience more spending within the context of the US Government. This is because, as the requested discretionary budgets for the Department of Defense are expected to increase 5% in FY2022 and another 4% in FY2023, on-top of this is the emphasis on Space expansion via the US Space Force.
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.”

Within recent times, the Department of the Air Forces have been very vocal in terms of issues caused by the use of continuing resolutions to fund the federal Government. Interestingly, and to ease concerns of Palantir investors, Air Force Secretary made the case that a CR in the upcoming 2023 fiscal year would have a majorly “negative effect”.
Kendall explained how operating over a CR keeps spending levels frozen from the previous year’s level in which limits the DOD’s ability to adjust for impacts of inflation and other increases within budgets.
“The thing that’s unique about this year is that inflation is occurring and is somewhat unpredictable, and a CR locks you into a previous year’s level of funding when prices are increasing. So you need to get to a point where you can make some adjustments because of that,” Kendall said.
As stated beforehand, the Space Force is projected to gain a 36% increase over 2022 within budgets for 2023. Any more CRs would majorly delay these funds, in which can deter the growth of the service, indirectly also creating volatility in terms of contracts for companies like Palantir.
Regardless, the main takeaway is the fact that over the short term, revenue within the Government is often lumpy, and thus experiences periods of downturn. This is due to the bureaucratic nature and accountancy of the Government, thus causing delays within the short term to deliver revenue. Yet, over the long term, this revenue is realised and equates to a staggeringly high CAGR.
Shyam Sankar stated in an exclusive call last month, that the Government business growth rate within 2018 was extraordinary. However, to explain the recent deceleration, there is often a drag that existing resolutions create as they prevent new starts from occurring. “Things that are new, they are delayed” said the COO. Sankar concluded, within the call with analysts from Morgan Stanley, that there are often complicated dynamics with budgets. This therefore can create volatility for upside, as projects can get caught up in blitz to get money out the door.
COO Sankar mentioned within the earnings call that the Government upside is large. This lumpiness comes down to contract timing and events occurring. “We will not deprive customers with software – just because the paper work is not there.” The COO concluded that there would be meaningful upside within Governments in the next few quarters.
Revenue Outlook:
“I just met with our US team, I suspect that this will grow North of 40%. This is despite the fact that we may have a recession. If the recession is strong enough, this may impact our revenue”.
CEO
When looking at future potential growth, Karp said; “in US, only 15% of top 1000 companies are buying our product. We have a lot of room for growth.”
In consideration of the higher cost of capital, and labour, companies are going to be investing within deflationary technologies and software to gain competitive advantages and to increase efficiencies.
Cost pressures should make companies accelerate investments in automation and productivity-enhancing technologies. Many of these technologies are inherently deflationary. Within this note, we provide a shopping list of “deflation enablers.”
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.
Software is a “Deflationary Technology in an Inflationary World” (Morgan Stanley).
All of this is to note how currently, based upon the macroeconomic outlook, deflationary software and technology is looking increasingly more appealing for organisations who want to cut costs and save time. However, despite stating this, one can not be fully ignorant to the reality in which if the recession is bad, and organisations cut costs dramatically, this is likely to translate into cutting costs and a lack of appeal for enterprise software – such as Palantir.
Interestingly, according to analysts at Bank Of America, they noted the following when attending FoundryCon: “no attendees showed concerns around how a possible recession could impact their ability to fund Foundry implementation”. This perhaps validates my prior comments in relation to software acting as a deflationary force within an inflationary world. Organisations, despite this recession, need to invest within truly transformative technologies.
International Government:
“International Government – likely to be very strong – Meta Constellation looks like the most cost effective way to defend your country in the world. We are already seeing countries on the boarder of adversaries showing a lot of interest in this product”.
CEO
The Ukrainian conflict has represented a fascinating inflection point in human history, in which prior to the conflict, consensus was concentrated on the notion that society would continue to experience further harmonisation, collaboration, globalisation, and stability.
However, this prior idealistic state in which society flourished within, now seems to be a time of the past.
Instead, in conjunction with growing political tensions, conflicts, division, and perhaps most importantly – changing world powers – the relationships between nations are becoming further divorced.
It seems plausible to assume that now, society is entering into a period of deglobalisation, disharmony, and exaggerated disconnection. At the core of all of this is increased levels of chaos and instability.
So, not only shall this instability impact commercial companies, as there is now a further necessity for agility, however Governments around the world now must strive towards more competitiveness regarding software.
Alpha producing software today, represents the power yielded by nuclear weaponry.

Changing Pricing & Strategy:
Alex Karp and management stated that; “average customer size is decreasing, in part due to the volume of customer we are bringing in”.
This seems to be in line with the usage of consumption based pricing.
“In Q4 we saw a number of small customers, later convert into large customers. This was mainly within commercial”.
CEO
Palantir is now focusing on consumption-based pricing. This allows folks to start with no commit. Instead, companies can start with issues they want to start focusing on, and over time slowly start to consume more. This therefore allows for a lower barrier to entry, however also potential for the customer to move towards Palantir full stack eventually.”
Interestingly, C3AI’s CEO recently introduced consumption-based-pricing models too. He mentioned in a quote:
“I’m pleased to announce that C3 AI is transitioning from a subscription model to a consumption-based pricing model, bringing us in line with what is becoming the standard among enterprise SaaS companies,” said CEO Thomas M. Siebel. “We have implemented a new pricing model, a new sales model, a new partner model, and new applications to accelerate sales cycles, accelerate product adoption, increase market share, and increase revenue growth and profitability in the medium and long-term.”
Mr Siebel also mentioned that, “The economic downturn is real. Our customers are scrutinizing big deals as never before, which also makes this a smart time to launch consumption pricing.”
This represents a seismic shift in the way in which Palantir is now catering to the adoption of new customers. This consumption-based pricing model perhaps will have short term impacts, regarding smaller revenues to start, however eventually over time will lead to the ease associated with adoption of the Palantir solution for smaller clients.
It seems reasonable to note that the benefits of consumption based pricing are within full swing, especially in light of this smaller client acquisition by Palantir.
As noted, through Palantir getting their foot within the door, this is a method of easing the friction associated with adoption, however then over time converting these deals into large revenues streams. This view was reinforced by management: “we are seeing a number of these small deals convert into enterprise deals. Moreover, we are seeing a way in which we can sell to a broader set of customers, through starting at a smaller price point”.
“We believe in our software, so we are more open to a lower price point”.
There is an on-going pricing model evolution for Palantir. Historically there were only two ways to think about licencing something like Foundry.
1) Enterprise licence – “all you can eat solution.”
2) Licence by use case – “aspiration only with two-to-three use cases.”
Palantir is now focusing on consumption based pricing. This allows folks to start with no commit. Instead, companies can start with issues they want to start focusing on, and over time slowly start to consume more. This therefore allows for a lower barrier to entry, however also potential for the customer to move towards Palantir full stack eventually.