Palantir – Success victim.

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Palantir’s silence will only make matters worse.

• Palantir is a very secretive company but the recent negative press raises valid points that need to be addressed if the gadflies are to be swatted into silence.
• A recent article on Buzzfeed took a look at Palantir coming to the conclusion that all is not well with the company which was valued at $20bn when it last raised money late in 2015.
• Buzzfeed’s research found the following:
  • Palantir has lost 3 of its top clients (Coca Cola, American Express and Nasdaq) in the last 13 months
  • Staff turnover has doubled to be in line with the Silicon Valley average at 20% in the last 12 months.
  • Palantir’s attempt to create a cybersecurity product and a data sharing consortium among its clients have failed and the teams have been disbanded.
  • Much greater attention is being paid to cost with reorganisations enacted to ensure maximum efficiency.
  • Serious issues around cash conversion with collections being just $420m in 2015 despite $1.7bn in bookings.
• The article prompted a vigorous defence of the company from one the founders who no longer works at the company (see here) but this has does nothing to address the problem.
• I suspect that there is nothing wrong with the company other than that things have not gone as well as the company expected and promised.
• Furthermore, the little that the company has said raises more questions than answers.
• The problem is simply that Palantir’s performance has not met the expectations that the company set with its investors and hinted at with the media when it raised money.
• Cost cutting and an increase in staff turnover are key indications that something has not gone to plan.
• This does not mean that Palantir is a bad company or that it is badly managed in any way, just that it has not been able to meet the lofty targets it set.
• The biggest issue for me is cash conversion as this is the life blood of any company and critical to valuation once pie in the sky moves onto execution of strategy.
• I think the increase in staff turnover is irrelevant and completely normal as Palantir transitions from being a start-up into a big company.
• Also irrelevant are the failures of two projects as much of building a business involves throwing mud at the walls and seeing what sticks.
• In fact, it’s a sign of good management that losing strategies have been cut fairly quickly.
• Many founders become emotionally attached to their strategies and let losers run for far longer than they should.
• However, I think Palantir needs to defuse the bad press which in a vacuum will only swirl and grow in strength.
• It needs to do two things:
  • First. It needs to explain how cash conversion works.
  • This is to make up for the mistake of allowing the market to wrongly assume that bookings would translate into revenues and cash within 12 months.
  • Second. It needs to explain how its technology is better than anyone else’s making it impossible to take this kind of analysis in house as News Corp appears to have done.
• In many ways, Palantir is a victim of its own success because with a $20bn valuation and no profits, one has to perform to an excruciatingly high standard especially in this environment.
• This means that expectations have to be met at every level and on every occasion.
• At this price there is no margin whatsoever for error.
• On the surface, Palantir is very like Autonomy in that they both mine huge troves of corporate data to arrive at meaningful conclusions that can then be used to allow the business to perform better.
• Furthermore, many of the issues raised by Buzzfeed were also issues at Autonomy when it was independent which a big reason why Palantir needs to nip this in the bud.
• Failure to address that could result in Palantir being labelled alongside Autonomy which would be truly awful outcome for the company.