Palantir Technologies (NYSE: PLTR) is a leading big-data analytics company based in Denver, Colorado. Peter Thiel, co-founder of PayPal, and several other PayPal alumni founded the company in 2003. The inspiration behind Palantir’s business model was PayPal’s fraud recognition system. Ideally, Palantir could use similar software to reduce terror attacks and foster civil liberties.
Over the years, the company developed its big data analytics platform to serve various other industries, including government, healthcare, and financial services. Palantir went public in September 2020 in an IPO that saw it raise $2.6 billion valuing the company at $21 billion. While it hasn’t been profitable since its IPO, its revenues have been on an upward trajectory. In F.Y. 2021, Palantir made $1.542 billion in revenue, up from $1.093 billion in F.Y. 2020.
Perhaps the most important thing to understand about Palantir is that it’s a software-as-a-service (SaaS) company. It doesn’t sell data; it sells access to several software platforms. This business model enables Palantir to have long-term relationships with its customers. The U.S. government, for example, is one of Palantir’s biggest customers.
Any investor or analyst looking to understand Palantir must first wrap their head around the company’s business model. Can the current Palantir business model sustain its revenue growth trajectory and lead it to profitability? Let’s take a closer look.
Bottom Line Up Front
Palantir operates as a SaaS platform that sells to both government and commercial customers. The company has three primary product offerings: Gotham, Foundry, and Apollo. Although its business model is growth-focused, the company isn’t yet profitable. Palantir’s revenue comes primarily from software licenses, which it sells on a subscription basis, but the company also derives income from professional services and other sources.
Palantir: Company Overview
Palantir makes it possible for organizations to turn data into actionable insights. The company uses advanced algorithms and machine learning to help its customers extract value from data. To achieve this, Palantir developed several software platforms that integrate, manage and secure data.
These platforms are purpose-built to solve specific problems across various industries, such as healthcare, government, and finance. The three main Palantir software platforms include:
As we’ll see later, these three software platforms serve different purposes and target different customer types. The software platforms are available to the public, non-profit organizations, and the private sector.
- Palantir Gotham: Gotham is Palantir’s offering to the government. Palantir Gotham is a big data analysis platform that can process, store, and analyze large data sets from multiple data sources. The U.S. government uses the Gotham platform for counterterrorism, anti-fraud, and law enforcement.
- Palantir Foundry: Foundry is Palantir’s enterprise data platform. Through Foundry, companies can build pipelines, clean and transform data, and run analytics. Processes that would usually take weeks to complete can take a few days or even hours with Foundry.
- Palantir Apollo: To use applications of the Gotham platform with the Foundry system, you need to use Apollo. In short, Apollo is a continuous data delivery platform that allows organizations to move data between the two software platforms. It’s the Apollo system that makes Palantir a SaaS company instead of a consulting company.
Palantir’s History and Funding
Palantir SEC filings indicate the company started its operations in 2003. The name Palantir comes from the Lord of the Rings novels by J. R. R. Tolkien, in which palantiri see stones that allow those possessing them to see great distances. Palantir’s original mission was to build software that could track terrorists and organized criminals by sifting through large amounts of data, a process known as “data mining.”
Initially, the company struggled to find investors. Reports indicate that Michael Moritz of Sequoia Capital doodled over an entire meeting while others even lectured the founders about how their company would fail. Among the early investors who believed in the company were In-Q-Tel, the CIA’s venture capital arm, and Thiel himself. In-Q-Tel raised $2 million, and Thiel, through his Founders Fund, invested $30 million.
At that time, it had its headquarters in a small office above a sushi restaurant in Palo Alto. In 2009, the Information Warfare Monitor (IWM) used Palantir to discover the nature of GhostNet. GhostNet was a Chinese espionage network that spanned 103 countries and infected 1,295 computers. Later in 2010, the IWM used Palantir to uncover the Shadow Network, a cyber-espionage campaign that targeted Indian and Tibetan entities.
In 2010, Vice president Joe Biden credited Palantir for its success in fighting fraud in the stimulus associated with the RATB (Recovery Accountability and Transparency Board). This publicity helped the company garner more business. Palantir SEC filings indicate that the company raised $196 million in September 2013. In December of the same year raised an additional $450 million.
By 2014 Palantir had a valuation of $15 billion. The same year, it raised an additional $500 billion, which saw its valuation hit $20 billion. It also raised $880 million in 2015. While most of the funding went undisclosed, Crunchbase reveals that the total disclosed funding for Palantir stands at $3 billion. The company’s most recent funding was a post-IPO equity round of $28.8 million on August 13, 2021.
Palantir Revenue Model: How Does Palantir Make Money?
Palantir’s revenue model is pretty straightforward. The company offers contract terms ranging from one to five years. However, some of its clients enter into shorter contracts of less than one year. The pricing of these contracts is not uniform, as it varies depending on the client’s needs. While some need just the software, others may need the software plus maintenance, support, and training.
As a SaaS platform, Palantir offers subscription-based plans. The company generates revenue by selling subscription access to its hosted environment (Palantir Cloud), software subscriptions for on-premise software (On-Premise Software), and other professional services.
Below is a more detailed explanation of the three components of Palantir’s revenue model:
- Palantir Cloud: The Palantir Cloud is a hosted environment that allows organizations to use Palantir software without installing and maintaining it on their servers. The subscription plan also includes operating and maintenance services throughout the contract period.
- On-premise services: For organizations that prefer to install and maintain the Palantir software on their servers, the On-Premise Software subscription provides access to software licenses and maintenance services for the duration of the contract. Customers can also install the software on their cloud infrastructure.
- Professional services: In addition to the two subscription plans, Palantir offers professional services to help customers get the most out of their investments. These service contracts included the needed support to implement, operate, and optimize the software. It also consists of the on-demand provision of expertise when required.
As of June 30, 2022, Palantir had 304 customers, up from 169 it had on June 30, 2021. These customers include government agencies worldwide and various companies operating in varied sectors of the economy. The U.S. government has several agencies using Palantir’s software. Some of these are the Department of Defense, the Center for Disease Control and Prevention, the Department of Homeland Security, and the U.S. Food and Drug Administration.
Palantir treats each of these agencies as separate clients. Therefore, while it is difficult to ascertain the exact amount these agencies spend on Palantir’s software, it’s safe to say that the U.S. government is one of the company’s biggest clients. Other significant clients include Airbus, Coca-Cola, JPMorgan Chase, and Microsoft.
Palantir Revenue and Financials
Palantir reports its revenue in two segments:
In the last six months ending June 30, 2022, Palantir reported $919.316 million in revenue, up 28% from $716.876 million in the previous year. The vast majority of this revenue ($504,788) came from its government business, while the commercial company brought in $440.539 million. Revenue from government contracts was up 15%, whereas commercial revenue was up 50% from the previous year.
Palantir hasn’t been profitable since it went public in 2020. Each year the company reports a net loss. The net loss for the six months ending June 30, 2022, was $280.708 million, up from $262.054 million in the same period last year. Part of the company’s lack of profitability is its heavy investment in sales and marketing.
While we can say that Palantir is a growth-focused company, it’s important to note that it isn’t sacrificing profitability for growth. The company is cash flow positive, and as of June 30, 2022, Palantir had $2.4 billion in cash and cash equivalents.
We can deduce from its financials that Palantir reports a non-GAAP operating margin. The margins are pretty impressive, but still, it continues to post GAAP operating losses. The reason behind this phenomenon is that it eliminates stock-based compensation from its GAAP operating expenses to reward its employees with equity.
Palantir trades on the NYSE under the ticker symbol “PLTR.” As of November 3, 2022, the stock was trading at $8.13, down from its 52-week high of $27.11. The market capitalization was $16.752 billion, and the P/E ratio was -30.6296. The P/E ratio explains why the stock is down from its 52-week high; investors are worried about the company’s lack of profitability.
However, it’s important to note that Palantir is a growth stock, and its share price will likely increase as it generates more revenue and becomes profitable. Investors are betting on the company’s long-term success, and as of now, Palantir is delivering on its promise.
Palantir Marketing Strategy
Palantir uses several marketing strategies to attract new customers and retain existing ones. One of its main marketing strategies is ecosystem partnerships. Ideally, these partnerships should result in a co-marketing arrangement, where both companies can cross-promote each other’s products or services.
Another strategy the company uses is category-specific implementation. Essentially, this means that Palantir uses its software to target specific industries and solve particular problems within those industries. Although this strategy limits the company’s potential customer base, it allows Palantir to focus its marketing efforts and position itself as an expert in specific industries.
Content marketing is another critical marketing strategy for Palantir. The company produces a lot of content, including blog posts, infographics, white papers, eBooks, and webinars. This content is designed to educate potential customers about the company’s products and how they can be used to solve specific problems.
Finally, Palantir also uses cross-selling software capabilities to upsell its existing customers. This strategy involves selling additional products or services to existing customers already using one of the company’s products. By upselling its existing customer base, Palantir can generate more revenue without acquiring new customers.
Palantir Business Model Canvas
Below is a business model canvas for Palantir.
1. Customer segments
Palantir serves two customer segments: government agencies and commercial businesses. The government segment includes military, intelligence, and law enforcement agencies. The commercial segment includes financial institutions, healthcare organizations, and other companies.
2. Value propositions
Palantir’s value proposition to the government segment is its ability to help these organizations solve complex problems. The company’s software is designed to help government agencies make sense of large data sets and make better decisions.
To the commercial segment, Palantir’s value proposition is its ability to help businesses increase efficiency and optimize operations. The company’s software allows businesses to automate tasks, improve communication, and make better decisions.
Palantir’s channels include its website, partner ecosystem, direct sales force, and software tools. The company’s website is the primary channel for its content marketing strategy. Palantir also has a partner ecosystem of companies that promote and sell its products.
The company’s direct sales force sells to government agencies and commercial businesses. Finally, Palantir uses several software tools to engage with customers and promote its products.
4. Customer relationships
Palantir develops customer relationships through its direct sales force, partner ecosystem, and content marketing strategy. It also uses its exclusive channels, such as its website, software tools, and events, to further engage with customers.
5. Revenue streams
Contracts with government agencies and commercial businesses are Palantir’s main revenue streams. The company has a subscription-based pricing model, where customers pay for access to the software depending on various factors, such as the size of data sets, number of users, and complexity of problems.
6. Key resources
Palantir’s essential resources are its team of engineers and data scientists and its proprietary software platform. The company invested heavily in research and development (R&D) to create its platform, which is why it has a high barrier to entry.
7. Key activities
Palantir’s key activities include data gathering, analysis, storage, and interpretation. Government agencies and businesses use the company’s platform to solve complex problems, such as counterterrorism, fraud detection, and financial analysis.
8. Key partners
Palantir partners with several companies and organizations, including the United States Department of Defense, the Central Intelligence Agency, Morgan Stanley, Goldman Sachs, and BMW. These partnerships are critical to Palantir’s success, providing the company access to data and customers.
9. Cost structure
Palantir’s main cost is its R&D expenses, which are necessary to maintain and improve its software platform. The company also incurs costs for sales and marketing, as well as for general and administrative expenses. Other costs include legal, taxes, and facilities.
We ran a Palantir competitors analysis, and some of the companies that stood out were Cognizant, Alteryx, Tableau, Splunk, Trifacta, and IBM Watson studio. An in-depth analysis is available in our Palantir Competitors report.
Palantir SWOT Analysis
Below is a summarised SWOT analysis of Palantir:
- Strong engineering team with experience in big data
- Proprietary software platform with a wide range of applications
- Strategic partnerships with major corporations and government agencies
- Direct sales force to reach customers
- Lack of awareness among potential customers
- High cost of sales and marketing
- High R&D expenses
- Controversial projects
- Government regulations mandating the use of data analytics
- Increasing demand for data analytics in the commercial sector
- Strategic partnerships and acquisitions
- Penetration into new markets
- Increasing competition from established companies
- New entrants with innovative products
- Economic slowdown affecting government spending
- Regulatory changes
Palantir Business Model Explained (FAQs)
Question: How does Palantir make money?
Answer: Palantir makes money through contracts with government agencies and commercial businesses. The company has a subscription-based pricing model, where customers pay a fee to access Palantir’s software platforms.
Question: Does Palantir use AI?
Answer: Palantir uses artificial intelligence (A.I.) and machine learning to help its customers make sense of large data sets. However, it allows human analysts to interact with the data and make decisions rather than relying solely on algorithms.
Question: Is Palantir Overhyped?
Answer: There is no simple answer to this question. Some people believe that Palantir is overhyped because its valuation is higher than its revenue. Others believe the company is undervalued because it has a solid customer base and growth potential. Only time will tell if Palantir is truly worth its current valuation.
Palantir’s business model is based on providing big data solutions to government agencies and businesses. The company has a subscription-based pricing model, where customers pay a fee to access Palantir’s software platforms. The company invests heavily in R&D to create its platform, which is why it has a high barrier to entry.
Palantir partners with several companies and organizations, which is key to its success. The company faces competition from established companies and new entrants, as well as economic and regulatory risks. Overall, Palantir’s business model is sound and has a bright future.
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