Palantir: Another Day, Another Few Hundred Million Bucks
Yeah, yeah, we know. We just did Palantir two weeks ago.
If it makes things better, we’ll give you a little peek behind the Iron Edge curtain. In Palantir, Politics, and Project Maven (February 20, 2020), we examined the program which seems to have generated a lot of controversy for the corporations involved, namely, Google and Palantir. We described the pronounced diversity of political philosophies at Palantir’s highest executive levels, and how they tie together to create a unified mission of giving American interests top priority as they navigate some decidedly choppy political waters. There was much to discuss, so the essay surpassed the length of the average Iron Edge newsletter. The words of Blaise Pascal came to mind: "I have made this letter longer than usual, only because I have not had the time to make it shorter." Still, there were more things we wanted to say about Palantir. The logical choice was to effectively make it a two-parter, with a little Hyperloop in between.
A few days before our Maven newsletter was sent out, Palantir made known a change in the way they compensate employees. Their method of rewarding employees with bonuses has heretofore been the simple and straightforward issuances of checks. The cash perks, as the company proclaimed last month, are being phased out in favor of equity incentives. According to an email from a Palantir director, this year’s bonuses will consist of 50% cash and 50% stock (specifically Restricted-Stock Units), and by next year they will be entirely in the form of stock. In that email, the director elaborated: “we need to not only continue focusing on growth, but also to ensure that growth is long-term sustainable as we march toward a successful IPO… Doing so requires revising assumptions and reevaluating how we can best use company resources to advance the business while supporting our people." If you require a bit of translation assistance, please continue reading. When an executive uses a term like “company resources”, you can always replace that phrase with “money”. So, the email is heavily implying that Palantir wants to reserve its cash for purposes of steady company growth, and a great way to curb spending is to be generous with equity. Employees are likely thrilled with the arrangement because they, as insiders, have a heightened awareness of Palantir stock’s upward potential. They might even view the stock bonuses as something better than good ol’ fashioned greenbacks.
The director who authored the email (a man called Khan Tasinga) employed an even more noteworthy phrase: “… as we march toward a successful IPO”. This is quite reminiscent of Palantir CEO Alex Karp’s words during an interview in Davos, Switzerland earlier this year. In that interview, Karp was quoted saying, “An IPO will happen, and you’ll see the results”. This was, by far, the most Karp had ever said publicly about a Palantir IPO. Honestly, that simple utterance was a cause for much celebration around the Iron Edge offices. While this is indeed a welcome development for us (and even more so for our many clients who have invested in Palantir), it should be noted that no timeline has been suggested. Guessing Palantir’s IPO date is a popular activity among those who dwell within the second equity market universe, and Tasinga and Karp’s words have served to make the game much more interesting. What’s more, Bloomberg has reported that Palantir is simultaneously considering the benefits of a direct listing as an alternative to an IPO. For the company, the difference between the two approaches lies mainly in the fact that an IPO brings with it a huge cash influx for the newly public company. For insider shareholders like Palantir employees or early round investors, the biggest difference is that shares involved in a direct listing are not “locked up” for six months: they can be sold from the moment of the company’s very first public trade. Should this be the path the company chooses, those equity bonuses could turn out to be quite a score for the fortunate recipients.
As it turns out, it was quite a fortuitous decision to break up our Palantir reporting and discuss the compensation changes today instead of a fortnight ago. A few days after our Project Maven email was sent, fresh headlines brought news that we must share with our clients. In truth, one could have missed the story because it looked like “old news”: “Palantir wins $823 Million Government Contract”. Wasn’t that a headline from last summer? we asked ourselves. It was indeed strikingly familiar, and when contracts worth nearly a billion dollars start to feel repetitive, that’s a good thing. In this new pact with the US Department of Defense, Palantir will be working with BAE Systems in an endeavor to replace the Army’s somewhat glitchy and costly Distributed Common Ground System. The task is right up Palantir’s alley as the System is focused on data analysis, and nobody does data analysis quite as well as Palantir. Sticking to the point, though, and the reason for this essay’s attention-grabbing title, it has almost become routine to hear about Palantir landing these behemoth deals. Clearly, they’re doing something right. Focusing on the numbers Palantir is receiving from Uncle Sam, it breaks down like this: with this new Common Ground System agreement, the company has just shy of $2 billion in commitments from the Defense Department. Their arrangements with the Department of Justice total just under $200 million. With Homeland Security it’s about $95 million, and $85 million with the Securities and Exchange commission. The Treasury Department, General Services, Commerce, Agriculture, and Health & Human Services combine to add more than another $100 million. We’ll add it all up for you. Palantir’s contracts with the United States government are worth nearly $2.5 billion. Please bear in mind that they are pulling in a lot of money from other national governments (all of which are allied with American interests) and from the private sector. Government work accounts for only about half of Palantir’s income, so their total revenue goes far beyond that $2.5 billion. The jobs they do for corporations are varied and quite fascinating, but alas we are starting to get long-winded again, so let’s save that topic for a later communication.
We’ll address one final observation before we sign off, though. Any commentary on a business in today’s environment would be incomplete without mention of the global health crisis that has been roiling our financial markets. Indeed, the spread of coronavirus is a very frightening occurrence, and the resulting market tumult could certainly convince any private company’s executives to keep their powder dry, delaying a public offering until days of more stability and greener pastures are upon us. Noteworthy, though, is that a challenge like getting a handle on something so big and seemingly uncontrollable is squarely in Palantir’s wheelhouse. The company already has a history of aiding the Centers for Disease Control (CDC): Ten years ago, the CDC launched the Foodborne Disease Outbreak Investigation System (FDOIS), powered by the Palantir Disease Response solution. In short, Palantir collects data on a disease outbreak and assembles the information into an instructive form that allows CDC analysts to put the puzzle together by integrating key datasets into one environment. A user-friendly dashboard, designed by Palantir programmers, gives CDC analysts a straightforward method of tracking outbreak diagnostic statistics. A separate application enables the creation of heat maps illustrating how diseases spread over time. Importantly, none of this is to suggest that Palantir is taking advantage of a crisis, but it is indicative of the data mining enterprise’s adeptness at applying their fundamental skill sets to critical situations. Beyond that, it’s reassuring to know that the company that has comprehensively mastered the art of molding a broad spectrum of information into useful intelligence has our best interests at heart. The piles of money they earn in the process is icing on the cake.
Shares of Palantir are, as of today, not available on the public markets. We at Iron Edge VC, on the other hand, can get you in the door right now, establishing your ownership ahead of everybody else. What’s more, our inventory is priced at a very attractive valuation. If you would like to learn more, or if you know of anybody else who would, please do not hesitate to contact us by clicking “Get in Touch” below.