Welcome to Palantir's 2024
Expectations for Palantir going into the new year
HELLO AND WELCOME TO THE NEW YEAR!!!!
Hope everyone had a Merry Christmas and Happy Holidays.
This will be the first newsletter going into 2024 — last week I was terribly sick with a 100 degree fever and I didn’t get many YouTube videos or newsletters out, but I’m recovered now and happy I’m entering 2024 without sneezing 15 times in a row.
The goal is to keep this newsletter daily, Mon-Fri, every week. Last year was wildly inconsistent for a host of reasons, but I feel I have a better understanding of how to accomplish this while maintaining quality. Again, I like writing these newsletter with my own words — AI helps sometimes to summarize an article or video, but the bulk of the analysis is me typing because I have a certain style and voice I like to portray, and what I also thinks makes content *actually* enjoyable to read.
So, the goal for the newsletter in 2024 is to get it out daily. Now, if that’s the goal for the newsletter, what’s are the goals for Palantir?
First, let’s discuss what happened in 2023:
Palantir ended the year up a whopping 160% — in fact, Palantir was in the top 10 performing stocks of 2023, following performances from companies like Nvidia & Meta. From a shareholder return perspective, if you bought in at the lows $6-$8 or DCA’ed into those lows to create a more attractive average, the market rewarded you.
In 2023, Palantir:
GAAP Profits 4Q’s consecutively
Introduction of AIP
$480M NHS Deal
US Commercial growth 30%+
2 AIP conferences
Revenue per employee doubled (from 2019 levels)
Institutional holdings highest they have ever been
Bootcamp GTM strategy defined and began to scale
I believe 2023 was objectively a successful year for Palantir. The company couldn’t achieve high growth rates of 30% as they promised for a host of reasons, the two biggest being a lack of sales GTM strategy and rising interest rates, making it much harder for companies to procure software from Palantir if the cost of capital kept rising.
However — in the face of this, Palantir decided to do the fiscally responsible thing, which was to clean up their balance sheet in two major ways: decrease stock based comp to reasonable levels (now at 22% of revenues vs 70%) and become GAAP profitable.
Going for profitability allowed investors to take the company much more seriously, since the theme of 2023 was focusing on sustainable profits in order to prove your company was not a function of purely low interest rates. It really didn’t help that Palantir had 3B in cash, no debt, but when investors went to see if they were profitable, the answer was no.
I believe more insitutions got excited around the first pump to $9 in May of 2023 after they showed two quarters of sustained GAAP profits — Cathie Wood’s ARKK bought 1M shares shortly after and cited profitability as one of the reasons they felt the company was finally turning a page and now was ready for the big leagues. Honestly, I would rather have us being GAAP profitable over 30% growth because now if we can get back to those growth rates, it will be done while maintaining profitability. Barring any black swan event, Palantir is not going back to being an unprofitable company.
Four quarters of GAAP profits also set the company up for potential S&P 500 inclusion which I believe will happen in 2024 since they satisfy all existing requirements. Overall, 2023 has been a success for Palantir, and now they need to show in 2024 that they can continue that success.
2024 Expectations
There’s 3 things I care about going into 2024:
Increased customer count
Increased top line rev growth
More International Government Deals
First, customer count to me controls the internal link to everything else improving. More customers means more revenue, it means more R&D to figure what verticals to expand in, and it also means more network effects — Palantir’s products get better as more people use them.
We currently have 453 customers growing at about 8% a quarter, if we can get that closer to 10% a quarter we should see closer to 1000 customers by end of 2024 — that may be a bit conservative given how the bootcamps are scaling, but it also can be optimistic since we don’t really know how well the conversion on those bootcamps are. Regardless, if we get more customers, the monetization of those customers will follow and then revenue follows as well.
Second, I want to see better increased top line revenue growth. Now, I know this sounds silly, because obviously every shareholder of a company wants to see the company grow revenues faster. However, in the case of Palantir, we are still growing under 20%.
You can’t be growing this slow for a high growth tech company. It is only but so long till the street destroys your multiple because they can’t justify paying 20 times price to sales for a company growing in the low double digits. This is why for Palantir it is incredibly important to figure out how they can get their growth back into the 20%+ range and hopefully get it closer to 30%. Our operating margins are improving, profitability is there, but now the street won’t reward us without growth.
2023 was the year that companies could engage in cost cutting to bounce back from their 80% draw downs — most of big tech either bought back shares or had massive layoffs to save on costs, EPS went higher, and the street rewarded them.
Now, those companies, including Palantir — which got a multiple for profitability but also AI exposure — need to actually show they are worth their multiple. The only thing that proves that is real growth, and 2024 will be the year for Palantir to prove their bootcamp GTM strategy is working to convert more clients and those clients can lead to more revenue.
Finally, I would love to see more international government expansion. Palantir is going to end 2023 with about $1.2B TTM in government revenue — they don’t break down how much of that is international vs. domestic, but I’d imagine clost to 70-80% of that revenue is from the US government. I want to see that change.
Getting the NHS deal was a VERY, VERY big deal for us in 2023. Against all the political backlash, Palantir found a way to get the deal done. My hope is that more NATO countries start to recognize and see the value of Palantir in a more isolated geopolitical landscape and seriously look into integrating them into their governments.
If Palantir can do more of the $1 deals with these countries, like they intially did with the NHS before winning a $480M deal, then I think we will be in the right spot when it comes to a GTM strategy focused on international gov growth. We need to be the operating system for a Finland, Sweden, Poland, etc…
Once we are integrated into those governments, even if we aren’t making $$$ from them this year, that money will come, exactly how it did from the NHS in the UK.
We need to get into these other international governments with big defense budgets so that when the US gov shifts their spend from less than 1% to about 5% of defense spending on software and the REST OF THE WORLD follows our lead, then Palantir is in a prime position because of pre-existing relationships with these governments to be one of the few companies to benefit from increased allocation to software spend from defense budgets.
Overall, I think 2024 can be very good for Palantir. The stock will depend on interest rates and where the macro takes us, but the one thing Palantir can try to control is their growth. If the execute against growth, they will have a good 2024.
Product Launch 2024
I’ve told you all on the newsletter that I have a product coming out in regards to Palantir research this year. Significant progress has been made on the product over the break and the goal is to launch it near the end of this month or early February as are finalizing all the little things.
I am using this product every day. It is phenomenal. You have not seen anything like this — it will cost $5/month, which I believe most of you will pay within seconds, because it is one of those products you will want with you FOREVER as a Palantir investor. I’ve thrown it around to a few people over the past week and I’m getting the same feedback from them — this thing works, is exciting to use daily, and can expand your horizon on understanding Palantir as deeply as possible and be updated on their current events, progress, and financials — daily.
Excited to have that launch and for you all to access it soon, instead of doing sponsors or anything like that, I’d rather have created my own product at a very accessible price that you all genuinely would want to use once a day or atleast once a week — I hope you all see value in it. Quick note: if you subscribed to this newsletter to the paid tier, which is just to support since there is no extra content, I will make sure you access the product for free as well — just watch our for your email once it’s launched since your substack yearly fee more than covers the fee for the product, so you’ll receive a code to access it and begin using it as well.
Reason to be excited for the future…
Here’s a quote from the Q4 2021 earnings call — Karp mentions how the company is continuing to get the best talent in the world although the company itself is old, and the reason for this is because the smartest people in the world are actually excited to work for Palantir. The mission, the technology, the purpose—all of it attracts top talent and going into 2024, this is another reason to remember whey you are invested. If the smartest developers in the world want to join a 20 year old company when they have huge packages they can get at big tech companies, it might be because they genuinely see the mission the company is fighting towards and the potential returns from them succeeding against that mission. Follow. The. Developers.
That’s it for today — see you tomorrow in your inbox!