Palantir's Alex Karp Calls Analysts "Idiots" Based on This Argument

Palantir's CEO recently gave an interview on CNBC. In that interview, many things were discussed, ranging from Russia/Ukraine to the actual stock price of Palantir.

When the stock price was brought up, the host of the interview explained that there are analysts out there writing about Palantir and claiming it is a consulting firm and not a software company.

Or at the very least, the revenue multiple (which tends to be significantly higher for software companies because of infinite scale and gross margins) shouldn't be that high given the company performs consulting and doesn't build software.

Karp's Response

Upon hearing this question, Alex Karp had a simple response:

I know what they're going to say in 2 years, why should I read them now? they will be writing about military stuff we can't talk about and our revenues will have increased. it's complete idiocy.

I cannot stress this enough: I 100000% agree with Alex Karp here.

Palantir is not a consulting firm, and anyone who says it is simply does not understand what the company does. In fact, I would have enjoyed seeing Karp simply ask the CNBC reporter one question in response to his consulting firm question: "Andrew, do consulting firms have gross margins of 81%?"

That would have ended the conversation there.

Palantir Does Consult, But They Sell Software

I understand why some people would be confused around Palantir being a consulting firm. If their software isn't something a client can open up out of the box, may a subscription for, and get to work - then isn't it not really a SAAS?

The problem with this argument is that it doesn't understand why Palantir needs to customize their product so deeply. Now, this will change as their products become more modular and companies will be able to use them out of the box.

For now, many clients that adopt the full suite of Palantir need to make sure it is in sync with their entire organization. This requires consulting and customization - but the end deal is a contract that Palantir is averaging 80% gross margins on.

Consulting firms get paid a flat fee for their time and strategic thinking. In my own consulting firm, I have always exchanged my time and intellectual labor for dollars.

Palantir is making reoccurring revenue off selling a piece of software.

While the selling process may require consulting for the first few months, the dollars generated off of that contract for the next 3-5 years are solely rooted in the client choosing to keep the product operating in their business, paying a subscription every year.

Maybe you have seen it before, but I personally have never seen a consulting firm achieve 80% gross margins on a subscription product years after they did the initial sell of that product.

You can watch a video of me talking about this here.

Thanks for reading the article. If you'd like to get in contact, please @ me on twitter here or email me at amit@dailypalantir.com. You can join our Palantir Facebook group here to participate in community discussions, polls, and more.