Challenges Faced by Palantir in Achieving Profitability and Growth
Palantir, despite experiencing revenue growth, struggles with profitability due to high operating expenses in the Acquire and Expand phases of their business model. Their specialized and expensive products hinder price competitiveness, leading to intense competition and limited market expansion. The company faces challenges in adapting to smaller corporations' needs and enhancing transparency for investors. These obstacles impact Palantir's financial performance and valuation compared to competitors.
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Christina Chapman The Golden Knights Clarkson University Reh School of Business Willem Kurdziel 1 John Molson MBA International Case Competition 2021 Patience Robinson Case 5 - Palantir Abhi Tripathi
Revenue has increased over last three years, but Palantir remains unprofitable. Their product, while effective and advanced when compared to their competitors, is extremely expensive. Currently operate at a loss in the Acquire and Expand phases of their business model. While revenue from the Scale phase is significant, it does not make up for the cost of the first two phases. Palantir needs to figure out how to create positive net earnings in these first two stages. This significantly contributes to their high operating expenses. With sales & marketing expenses expected to increase even more as they expand in these areas, Palantir needs to find solutions that enable them to lower their overall operating expenses in order to see a profit. Their large competitors, such as Google, Microsoft and IBM, offer a variety of products and services, that allow them to scale down their prices, while still maintaining high revenue and profits. Palantir s offerings are very specialized and customized which makes it difficult for them to lower their price. They only have a presence in four analytics concentrations, albeit a strong presence. To appeal to smaller corporations, Palantir would need to adapt their products to their needs at an affordable price.
Issues with current product portfolio Intense Competition Controversy Costly Commercial Sales IBM Google Amazon Splunk Home Depot Coca-Cola American Express Hershey COVID19 response Ethical applications
Competitive Financial Analysis Revenues and Growth Rates Palantir s Revenues grew by 24% in 2019 vs. Competitor Revenues grew by >100% in 2019 Competitors are growing at faster rates primarily due to their ability to scale to a large base of customers with much less customization. Palantir, on the other hand, needs engineers to adapt its tools to the unique needs of customers. High customization = High cost Profitability Palantir s Gross Margins stood at ~72% in 2020, with Operating Margins coming in at -35% Less profitable than competitors due to high customer acquisition costs and high product customization Valuation Limited growth in valuation over last several years ($~15B) vs. Competitor valuation growth nearly doubling Lack of focus on commercial sector when compared to competition and more focused on Govt related contracts causing lack of transparency and perception issues for investors
