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.
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.