
A prickly patriot: Palantir’s prospectus reveals losses, promise - jkuria
https://www.economist.com/business/2020/08/29/palantirs-stockmarket-prospectus-reveals-both-losses-and-promise
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roenxi
It really raises an eyebrow how many of these companies lack profits.

Palantir was founded in 2003. After 17 years of work, they are losing more
money in a quarter than most people can earn in a lifetime.

I personally think the situation is stupid and it is foolish to "invest" in
such a company. However, in the event that this works out, there are going to
be some great counterexamples to the idea that only governments can think long
term. If this path ever leads to profits it is a plan executed on a grand
scale. This is a baffling form of might-be capitalism.

~~~
edouard-harris
If you read the S-1, you'll notice that Palantir's costs are front-loaded, and
their revenues are back-loaded, on a per-deal basis. A given deal both costs
them far more its first year, and generates far less revenue in its first
year, than it does in any subsequent year. This is strikingly similar to SaaS
economics. (Palantir is not a SaaS, but its cashflows _and long-term margins_
look a lot like those of a SaaS.)

Government contracts take a long time to close, but once closed they generally
stay closed and often expand. Defense, in particular, is the most enterprise-y
of all enterprise clients. So it's reasonable for Palantir to outlay a large
fixed cost (in the form of sales, consulting, and integration) in exchange for
a perpetual, increasing annuity. Their quarterly losses are a result of them
closing many new deals that are in the integration phase and haven't yet
started to monetize fully. Notably, Palantir's per-deal long-term margins
(70-90%) are closer to those of a SaaS than to those of a Big Four consultancy
(~30%).

The "lose money now, make money later" playbook is common to all SaaS
companies and works phenomenally well. Palantir's twist is that they do
significant integration and custom work up front, at the expense of less sales
staff. If you dig into their numbers, it's hard to argue they haven't made a
strong case that this model works.

So while I understand the skepticism at their high-level metrics, the details
paint a more optimistic picture than "low interest rates made this bad company
viable" (an argument I've seen elsewhere). No IPO investor wants to subsidize
losses indefinitely, after all.

~~~
jnwatson
"Make money in the long run" is a fine strategy, but as Keynes quipped "in the
long run, we're all dead". 17 years is more than enough time have exploited
quite a few long-term deals.

It isn't like governments aren't aware of these tactics. They can and do work
to substitute out vendors once they get too expensive. In fact I've heard
whispers of several customers of Palantir doing just that.

(Disclosure: I work for a competitor of Palantir.)

~~~
bhupy
> as Keynes quipped "in the long run, we're all dead"

This is one of the more over-used quotes. In this case, it's not particularly
relevant since US fiscal and monetary policy is almost entirely designed
around incentivizing long-term investment over short-term gains.

If Palantir is indeed a good "long run" bet, then every pension fund, 401(k),
mutual fund, or ETF (read: most institutional investors) should in theory eat
it up after the IPO.

To borrow another pithy quote:

"Show me the incentive and I will show you the outcome."

\- Charlie Munger

~~~
Barrin92
>in theory eat it up after the IPO.

or maybe not in theory but in practise, the entire stock market performance
has shifted so strongly towards technology companies due to the general low
growth environment we're in that the whole thing comes crashing down in five
to ten years because there's actually no business model

~~~
bhupy
In practice, the entire stock market has reverted to a comically long-run view
of the economy writ large. That's why despite a historic pandemic,
unemployment, and GDP contraction, most indexes (including the un-weighted
ones) are at close to all-time-highs. It's all "priced in".

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supernova87a
[https://www.sec.gov/Archives/edgar/data/1321655/000119312520...](https://www.sec.gov/Archives/edgar/data/1321655/000119312520230013/d904406ds1.htm#rom904406_9)

What Palantir's S-1 told me (along with knowledge of their business model) is
that they have to sell government agencies pretty hard -- sales/marketing to
the $ tune of 100% of the gross margin -- and then spend a lot of money to
build the analytics and deliver the goods. (lots of hidden costs in "forward
deployed engineers", which have to be assigned to every customer)

They are not a software company -- they're a _services_ company that builds +
uses software to deliver insights. That's a very different profit situation
than purely software. If they even get out of the hole to begin with.

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patrickk
[https://webcache.googleusercontent.com/search?q=cache:s26sz6...](https://webcache.googleusercontent.com/search?q=cache:s26sz6QbVCkJ:https://www.economist.com/business/2020/08/29/palantirs-
stockmarket-prospectus-reveals-both-losses-and-
promise+&cd=1&hl=en&ct=clnk&gl=de&client=firefox-b-d)

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Google234
I would have though development would have taken up more of the pie.

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ur-whale
[https://archive.is/JfC8A](https://archive.is/JfC8A)

