Palantir Vs. Salesforce
Palantir Vs Salesforce
This is an analysis from one of the clips we did about Palantir and Salesforce - you can listen to it here.
“Of all the companies that I think probably resemble the growth trajectory for Palantir, Salesforce is the one that comes to mind… just a slow pattern of growth.”
A quote from Kris on one of our recent episodes of Palantir Weekly on Youtube. Kris was pointing to the stock chart of Salesforce (CRM) showing how over the years starting back in 2004, Salesforce’s stock really has done nothing but have a steady climb up in price.
Contrary to what most believe when looking at a multi decade long stock chart, stock prices never climb in a straight line. Salesforce in fact fell over 50% multiple times throughout its history, despite the graph looking as if it only went up and to the right.
“Back in 2003-2004, [People] were like ‘ah but do we really need Salesforce? I don't think so’. You know, people didn't believe in it, but eventually once it caught on it became an industry standard.” Said Kris,
“The truth is, if you buy and hold, DCA in, I think we’re probably going to get a growth trajectory very similar to salesforce.” He said in reference to Palantir’s stock.
Stock Price Does NOT Equal Business Performance
Kris:
“10-15 years, when you look at Palantir, you'll be like ‘were we really arguing between Palantir at seven and ten dollars, like did we really think that it wasn't going to work?’ Because what happens is; eventually the cash flow will come in, once the cash flow and once the profits come, then it's like okay what are they going to do with it? Are they going to do acquisitions, buybacks… 10 years from now when Palantir let's say it's at a hundred dollars, just say a hundred dollars right, it's a 10x. Do you have 10 years to wait? Are we going to do Palantir weekly for the next 10 years?”
Amit:
“Yes”
Arny:
“Chris, if I can just add something to what you're saying. I think it is really important to actually make the distinction between the business and the stock, because before you showed the stock. The reality is that the business actually is the steadiest thing you could ever imagine. Like even during the crisis, the 2008 crisis… Salesforce at the beginning, they started with 500 million revenues.”
Arny is referring to a chart depicting Salesforce’s growth through the financial crisis. They managed to 3x their revenues from 2007-2011, while the stock price fell in value by 70% from 2007-2009
Arny:
“The other company I really like to compare Palantir with which is a Service Now. Like they kept growing no matter what and the cool thing is that during crashes these stocks got completely beaten… As an investor, this is the thing that excites me the most. You have a business that is very very stable. Actually with Palantir, we have proof that benefits from adverse things like shocks accelerate the business. But the stock is hammered and is extremely volatile.”
Arny is predicting that Palantir will have a similar revenue growth chart over time as compared to the chart above which is service now from 2011-present.
The exact type of growth an inverter wants to see, consistency.
Dilution
Amit:
“Arnie do you know if Salesforce had a lot of dilution during this?”
Arny:
“Salesforce had a lot of dilution for two reasons. Not much at the beginning, because at the time the engineers were relatively okay. Now the problem with SBC is that the good engineers are extremely costly, so you need to compensate them. Over time they always had the SBC thing… The real problem with Salesforce is that they had to dilute to grow. Salesforce since the product per say is not driven by Network effect, it is driven by a lot of sales people. 30-40 percent of the employees in Salesforce are sales people.”
The group went on to discuss how many companies like salesforce fuel their growth from acquisitions. Growth rates above 30% are not able to be maintained for decades at a time. Thus in order to maintain growth above that 30% threshold, companies are forced to acquire new faster growing companies that can be integrated in. This often is fueled by dilution of existing shareholders.
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