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Palantir: This Time it's Different
Less time = more money. One less click is one step closer to mass adoption.
Palantir generates 3x the output compared with 3 years ago.
How? It is all about time.
Less time = more clients
Palantir is able to acquire an increasing number of new clients per quarter:
The number of clients is not only increasing, but it is also accelerating YoY:
35% in 21q2;
54% in 21q3;
71% in 21q4;
86% in 22q1.
This creates a solid base for further growth in Revenues in the coming quarters as these clients expand their relationship with Palantir.
Notably, these clients are obtained with approximately the same cash expenses in Sales and Marketing, which I consider “resources”.
Less time to deploy software allows to obtain 3x the output with similar resources.
Time has shrunk dramatically due to the combination of:
archetypes: frameworks of previously solved problems;
best practices: learning how to deal with corporate clients effectively;
AI/ML: Foundry itself becomes more efficient and effective.
Palantir in 2022
B2B sales cycle can be very long. They could take months or even years for some customers.
However, from the information we are given, Palantir is becoming incredibly efficient in bringing customers onboard:
~8 months in ‘19 (from S-1);
~6 months in ‘20;
~2 months in ‘22.
Lowering this time means a client can start generating Revenues sooner, therefore Palantir can return faster to its costs of client acquisition.
More specifically, we can observe the dramatic difference over the last 2 years.
3x improvement in 2 years.
This means Palantir needs 1/3 of the time to get a client onboard compared with 2 years ago.
In other words, we can say that:
Palantir can get 3 times more clients than 2 years ago using similar resources.
This can create a huge divergence the more time passes by.
Clearly, there are structural limits on how fast a B2B sales cycle can become since it requires many phases and approvals from different corporate managers. However, this steep reduction is clearly indicative that the Palantir sales machine works.
One less click is one step closer to mass adoption.
Less time = more Margin
Palantir Contribution Margin exploded from a 14% Contribution Margin in ‘18 to 58% in ‘21.
Time was the driver of the Contribution Margin expansion.
As of S-1 filling (reference in the Appendix), the time needed for a client to start using their data decreased substantially:
70 days 19q2;
14 days in 20q2.
5x improvement in 1 year.
Another example is the time used to integrate different ERP systems (this product is called Palantir Hyperauto):
45 days in 19q2;
4 days in 20q2.
10x improvement in 1 year.
Less time = More Revenues
The difference in Revenues from capturing 1 client vs. 3 clients per year could be astonishing over the long term:
The example above assumes the Revenues from the sample client are:
$1mn 1st year;
$5mn 2nd year;
$50mn 3rd year;
$100mn 4th year;
$150mn 5th year:
After 5 years the divergence in Revenues could be already substantial and the longer the timeframe the bigger the divergence becomes.
The example considers a fixed number of new clients per year. In reality, by gradually increasing efficiency, a greater number of new clients can be more easily onboarded.
Lower time to deploy is the key driver to get exponential growth in the future.
How the Flywheel spins
The client flywheel works like this:
Lower time = I can distribute more efficiently;
More efficiency = I can generate more cash flows;
More cash flows = I can deploy more resources (engineers and marketing expenditures);
More resources = I can deploy software to more clients;
More clients = I can onboard a new client in less time.
Time played and is going to play a crucial role in Palantir’s growth trajectory.
In particular, time generates:
Time is the oil of Palantir’s growth engine.
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View expresses are my own. Do not represent Financial Advice.
I own (many) PLTR 0.00%↑ stocks.