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Palantir CEO Alex Karp's first pitch to public investors: 'You should not invest in Palantir if...'

palantir alex karp
Palantir CEO Alex Karp.
Reuters/Andrew Kelly

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  • With a direct listing expected later this month, Palantir executives laid out the case on Wednesday for why investors should buy into the data company.
  • CEO Alex Karp, who kicked off the presentation mid-roller ski, said the company is "just different" from a normal software business.
  • Karp described Palantir's products as a saving grace to its clients' survival, while acknowledging that its technology is not widely understood.
  • While Palantir, like other tech companies, hasn't yet had a profitable year, executives laid out their case for why the 17-year-old company is "still in its infancy" and has a long runway for growth.
  • Visit Business Insider's 合约数字币和虚拟币homepage for more stories.

Palantir CEO Alex Karp on Wednesday leaned heavily into quirkiness and nonconformity for the 17-year-old company's first public pitch to investors ahead of a direct listing expected later this month.

Karp, a Palantir cofounder with a Ph.D. in philosophy, opened the digital event while roller skiing through a forest and outfitted in exercise garb and goggles, and laid out what would remain his main argument throughout the two-hour presentation: "Our business is just different than what you'll find in most software businesses."

The data-mining company, named after a "Lord of the Rings" reference and an outcast in Silicon Valley because of its embrace of military contracts, will be especially reliant on investors understanding its business because of the unusual path to the public markets it's chosen.

But Karp and other Palantir executives seemed to take pains to emphasize the company's unconventional business philosophy over providing clarity into the business.

"I don't want to bore investors with a philosophical exegesis, but you see this in the great writers, both philosophical, sociological, and in literature, that they capture something that then people understand years later," Karp said. "De facto, what Palantir is doing is the same thing but in tech."

Traditionally, an investor presentation before a public debut serves as the company's opportunity to show how it's changing the world, explain its product, and gloat about eye-popping financials.

For Palantir, which is eschewing a traditional initial public offering in favor of a direct listing, making a good first impression with investors is critical. Since investors — whether institutions or laypeople — buy shares directly from existing shareholders in a direct listing, it's important to get people hyped about the company, or the shares won't sell and the stock price will fall. Traditionally, IPOs ensure against crashes by selling large chunks to institutional investors that can stabilize the price.

Despite nearly two decades of venture-capital funding and a $20 billion private valuation, Palantir revealed in its S-1 prospectus last month that it had never had a profitable year in its history and posted net losses of about $580 million in each of the past two years. The company's revenue totaled $742.6 million in 2019, up 25% from the prior year. As recently as April, the company expected to hit $1 billion in revenue this year, Bloomberg reported.

During the presentation on Wednesday, Palantir executives explained the company's data-analysis products and talked about its success stories. But leadership appeared on the defensive throughout the presentation, saying the company creates technology that's so far ahead of it's time that the world doesn't immediately understand its value. 

Here are the big ideas from Palantir's investor presentation:

Palantir's business model is 'still in its infancy'

Unlike many startups founded in the wake of the 2008 recession that are now going public, such as Airbnb, Palantir got its start in 2003 — but executives said the company still has nearly unlimited room to grow.

Kevin Kawasaki, the company's head of business development, highlighted Palantir's 49% jump in revenue during the first half of 2020, compared with the period before, part of what he said was a trend of accelerating growth revenue.

"We don't see anyone else doing this," Kawasaki said.

Palantir works with private companies, like Chrysler, BP, and banks, and with government agencies, including the branches of the armed forces. The company said it was working in an addressable market of $119 billion, between commercial and government sectors.

Go deeper: Secretive Palantir Technologies is preparing to go public. But behind the cloak-and-dagger image, insiders and investors say, it's struggled to build a steady revenue model.

"When you think about it, we're a 17-year-old software company, but in many ways, our products and our go-to-market strategy are still in our infancy," Chief Financial Officer David Glazer said.

Palantir's top 20 customers have been with the company for about 6.6 years on average, and Glazer said expansion with existing customers was the company's main revenue driver.

A lawsuit Palantir brought against the Army, which was resolved in 2018, opened up more opportunities for it to sell to the government. During Wednesday's presentation, Chief Operating Officer Shyam Sankar highlighted that ruling as a "clear inflection point" leading to more contracts from the Army and expansion into other branches of the armed forces.

Its business is best in a crisis

Palantir painted its products as a saving grace that have proved crucial to clients' survival, even if its technology is not widely understood.

"Palantir builds stacks five to 10 years before the general public realizes that this way of looking at the world will literally save your institution," Karp said.

Some of Palantir's biggest contracts have arisen from clients facing immediate dire threats. Since the onset of COVID-19, the company has been awarded more than $42 million in contracts with government agencies addressing the pandemic.

"Historically, periods of macro instability or crisis have been a huge tailwind for us: the global financial crisis, ISIS attacks in Europe in 2015 and 2016, the present day COVID," Sankar said.

Read more: Palantir's direct listing breaks with Spotify and Slack in one critical way that affects insiders' ability to cash in their shares

With its reliance on military and government contracts, it's no wonder Palantir sees crises as its competitive edge. But part of the reason Palantir thrives on crises is that it's able to market its products to clients who simply don't have time to build their own software.

"We compete against ... our customers' desire to build their own solution internally," Sankar said. Crises are "a tailwind for us because it means that the competitive alternative of building your own solution in three years or more — it's just not viable."

It's not going to change for Wall Street

Karp closed the presentation with a detailed list of reasons that people should not invest in Palantir, hypothesizing a world in which the bankers of Wall Street pressure tech companies to work hand in hand with itarian governments.

"Typically people will say if you don't take every dollar off the table and work with some crazy environment, that's doing highly unethical things that are not in accordance with the local law and cannot be justified by any standard, that you are being unfair to investors," Karp said.

He added:

  • "You should not invest in Palantir if you think we are going to change our internal culture drastically."
  • "If you think we are going to work with regimes that are not allied with the US and are abusing human rights."
  • "If you think that the future is going to be a superrosy place where the past ways of supplying software are going to work because enterprises and government do not need to be reformed, you should not invest in Palantir."
  • "If you think we are going to reduce the complexity of these issues to some weird sound bite that makes sense to somebody in marketing hired by a consultancy, you should not invest in Palantir."

Whether or not investors want these things from public tech companies is one thing, but this list highlights one of Palantir's central pitches: Its slow revenue growth is not a business failing but the consequence of superior morality.

Karp extended this argument in defense of Palantir's products, which he described throughout the presentation as five, six, and 10 years ahead of their time. The products, Karp said, are similar to new ideas proposed in the arts, emphasizing his background in philosophy and functionally demonstrating once again that neither he nor Palantir is like the others in the field.

And since Palantir has a multiclass share structure that consolidates voting control in the hands of the company founders, investors will have little choice but to hope Palantir's vision pans out.

Disclosure: Palantir Technologies CEO Alexander Karp is a member of Axel Springer's shareholder committee. Axel Springer owns Insider Inc., Business Insider's parent company.

Disclosure: Palantir Technologies CEO Alexander Karp is a member of Axel Springer's shareholder committee. Axel Springer owns Insider Inc, Business Insider's parent company.