When Palantir began, people believed that data was worthless, that software was a luxury item, and that we would fail.
That’s how Palantir CEO Alex Karp sees it. The first two points are open to considerable debate, but as for the third one, last week’s quarterly results announcement was enough to prompt Wall Street to appear to take a similar view and send the stock price tumbling.
Q4 revenue was up 26% year-on-year and the firm signed 34 new customers in its latest quarter, but a $156.19 million net loss vs a loss of $148.34 for the comparable year before quarter spooked the horses, as investors contemplated once again when this 18 year old company might turn in a profit.
For Karp, the latest ‘mixed’ earnings news was the cue to launch into a pitch about how much the world had changed around Palantir:
We've been able to see how the world has changed dramatically in its perception of software - and, of course, of us - from a world where software was something that you might want, might be in your car, but de facto would not determine your business to a world where really the laws of finance are going to be rewritten to deal with a world where the only real moat is software.
Karp was only just warming to his theme, demanding rhetorically to know of software:
How do you measure it? What does it look like? How do you understand when it's creating value? How do you understand when it's declining in value? How do you understand when it's compounding? To what extent is it compounding? What devices do we use to measure that? Are the devices we use to measure it the ones that we used in the past? Clearly, this industry is in its infancy. What's also very special about this industry is it really is, by and large, geographically located in a small section of America, which is odd, and there's lots of interesting reasons for that, but enterprise software is something that America is by far the best at.
Memo to Karp - a number of other countries would like to have a quiet word at this point…
Taking on the analysts
But Karp had other important matters to discuss, such as the nature of earnings calls:
I don't want to take a ton of time with remarks because I think when I'm watching these things, if someone talks too long or there's like a lot of canned remarks, I wonder, ‘Why?’. Honestly, [it] gets a little boring. And of course, our legal department and IR [Investor Relations] department, which are wonderful departments, have a cane ready to pull me out if I'm not like a caged animal in the 1950 zoo. As I've mentioned to them, if you want caged animals in 1950 zoo, you can watch any other earnings update!
That’s them told then! Next up - the analyst community:
When analysts look at it, the primary customer of most software companies is not the client, it's the software analyst….obviously, our primary clients are our clients….now we're thinking about how do we expose the data in a way that people on the outside, like you and professional analysts and others can look at the data and get a better sense of what's tracking, what's not tracking?
But the primary source of a lot of these like questions really comes down to, ‘Look, we built the company to support the US warfighter primarily and then..use it for the glory of humanity, particular humanity in the West. That was our idea. And because our primary client was not what someone [who] had a hedge fund would think, we didn't actually think of these things from inception.
So now there's a process of normalization, he went on:
You're seeing a normalization. This will change. It will change in the relatively near future. It will be linked to other things that we believe are important for Palantir, like having a company that thrives in bad times. Bad times are very good for Palantir because we build products that are robust, that are built for danger.
But Palantir hasn’t communicated that well enough, he argued:
One of the things we failed at, honestly, is capturing the value of what we've done. Most of the products you would see on a map in the industry, any company, they're delivering things we built 7 years ago. We failed in capturing the value of that. We're not going to fail again. We failed in capturing the value of that because we were selling to IT and selling to people in an adversarial way.
That’s going to change, Karp insisted, with a drive to recruit 200 new salespeople, both in the US and in Europe as well as more technical talent. That’s attracting all the right people, he said:
A company like ours [being 18 years old] should be getting declining talent. The talent we're getting now is the best in the world. It's the best we've ever gotten. And we're getting people who used to be at Palantir. Everyone knows how good our people who are coming back. Just like, no company of our pedigree gets people coming back. The reason they're coming back is because this is just [expletive deleted] cool! It's like, ‘You do this, you change the world’.
And that world needs changing, he concluded:
It's really tough times out there, really tough for a lot of businesses. A lot of things are going wrong in the world, in our world - the obvious danger, the lack of legitimacy of a lot of our institutions. And I can tell you at Palantir, we are very, very focused on our business and bad times are very super-motivational for us. And when we get to good times, we'll be even stronger. We're a little bit of a like a wacky group of guerrilla war fighters, but we're very much in fighting mode - and not just for us and the West, but also for our shareholders.
Well, it wasn’t dull…
Nor was it a one-off. Check out the company’s Valentine’s Day missive to shareholders for more tub-thumping rhetoric, unashamed American exceptionalism and more than a few swipes at the “technocratic elite in Silicon Valley”.
A palantir is a ‘seeing stone’ used by Saruman in JRR Tolkien’s The Lord of the Rings. Eighteen years after Palantir was founded, is it unreasonable to assume that that what shareholders most want to see is a profit?