Venture Bytes #64 – Palantir Steps Out of The Bunk

Palantir Steps Out of The Bunker

After 17 years as a private company, Palantir Technologies has finally filed (confidentially) to go public . Palantir is considered one of the most secretive Silicon Valley companies, with clients including the U.S. Federal Bureau of Investigation and the Central Intelligence Agency. While the company has a number of high-profile mainstream enterprises as its clients, it has garnered more attention for creating software that helped track down Osama bin Laden, helped convict Bernie Madoff for running his Ponzi scheme and, more recently, winning the ICE contract to provide software until 2022.

Against this backdrop, the Palantir IPO is expected to be controversial and closely watched. Is the company ready to enter the public market? A close study of the company shows that it is.

Founded in 2003 by Peter Thiel, Joe Lonsdale, Nathan Gettings, Stephen Cohen and Alex Karp, the CEO, Palantir is an innovative software company at a time when enterprises are re-architecting their technology infrastructure to harness massive, disparate data sets, and provide deep insight in real time.

The big data and business analytics (BDA) solutions market is projected to reach nearly $275 billion by 2022. It is estimated to grow at a 13.2% CAGR from 2018 through 2022 with the bulk of the demand concentrated in the U.S. which had an estimated $100 billion, out of $190 billion, in revenues in 2019. Global data volume is expected to increase by 29 times to 35 zettabytes (a zettabyte is 1 followed by 21 zeros) in the next ten years as per IDC research.

Data, for all practical purposes, has become the lifeblood of almost all verticals, as data-centric decisions become the norm and not the exception. Every enterprise needs and wants to control, learn from, and exploit the potential value of the data it collects and proliferates. Few are able to do so. Search for needles in an exponentially growing, unstructured haystack is a formidable challenge. From manufacturers looking to gain greater insights into streamlining production, to financial services firms seeking to proactively detect fraudulent transactions and government agencies using complex data sets to pin-point national security threats, the operative word is predictive analytics. Palantir has emerged as a leader in providing solutions to this definitional problem of the 21st Century.

Data sets have become increasingly complex. Today, roughly 95% of data generated is unstructured, driven by humans and machines – a stark contrast to the data generated from traditional enterprise business applications (e.g., ERP, CRM, SCM). The key drivers of this change have been a combination of machine data, mobile traffic growth, and social media. The traditional relational databases and IT infrastructure, which were designed for structured data, cannot process the enormous volume and complexity of today’s data.

Palantir’s software analyzes multiple forms of data including structured, unstructured, relational, temporal, and geospatial data. Through its flagship products – Palantir Gotham and Palantir Foundry – the company helps to integrate, manage, secure, and analyze all forms of data in multiple verticals. Best of breed learning algorithms require vast data sets to process and learn from. As an early player in big data, Palantir has been learning and iterating longer than most other companies.

Additionally, the size, scope, and nature of Palantir’s large clients, especially law enforcement and immigration agencies, have allowed the company to process and learn from unique and vast caches of data. Over time, Palantir has developed more automated solutions that specifically target growing demand for easily deployable business analytics and actionable intelligence solutions from enterprise clients. With 50% of its sales to government agencies and the rest to private enterprises, and a growing roster of government and private contracts, Palantir is well positioned to capitalize on the near ubiquitous demand for data mining and actionable analytics in real time.

With a strong backlog and a number of recent high-profile contract wins, the highly-awaited public listing is ready for prime time and should be well received, the recent negative publicity notwithstanding.

On-Demand Delivery Companies at a Crossroad

On-demand delivery companies have reached a crossroad. The choice ahead is to stay the course with a singular focus on food deliveries with a cloudy path to profitability or scale up with acquisitions and expand the delivery menu to groceries, health items, and other convenience items and operate with a clear and defined path to profitability. The choice is obviously the latter and recent developments suggest the major players are well on their way.

The major on-demand delivery companies apps are roughly a decade old but none of them have been profitable so far. At issue are a fragmented market, high customer acquisition costs, including generous promotions, and negative operating margins. The sector was long overdue for consolidation and expanding the addressable market. Fortunately, recent developments suggest the process has begun.

DoorDash, the incumbent leader with the highest market share, announced a partnership this week with Walgreens Boots Alliance to deliver over-the-counter medication and other products from the drugstore chain. The service is launching in the Chicago, Atlanta, and Denver areas, with plans to expand to other markets throughout the summer, according to a news release. Customers can order on-demand delivery from Walgreens through the DoorDash app and website, selecting from an assortment of more than 2,300 convenience, health, and wellness items. By the end of summer 2020, Walgreens and DoorDash plan to offer more than 5,000 items for delivery on the DoorDash platform and will expand the service to other major markets starting with Cincinnati, Cleveland, Minneapolis, Oklahoma City, Phoenix, Sacramento, and Seattle.

Late last year Uber announced plans to buy a majority stake in online grocery provider Cornershop to diversify into the grocery store market. Santiago-based Cornershop operates in Mexico, Chile, Canada, and Peru but the deal would allow it to deliver groceries in many more countries worldwide from retailers including Costco, Walmart, and Mexico’s Chedraui.

The $2.65 billion acquisition of Postmates will have a net accretive effect on Uber’s food delivery operations and will help offset the decline in its ride hailing segment. In addition to the synergies, the acquisition will help Uber establish a deeper foothold in Postmates core markets: Los Angeles, Las Vegas, Miami, and Phoenix. The deal expands Uber’s market share to 37% of the U.S. market and will boost UberEats’s revenue contribution to 30% of Uber’s total revenue. More important, a more diversified portfolio, higher order volumes, $200 million in expected cost synergies, and Postmates’ annual net revenues of around $450 million, could potentially accelerate Uber’s profitability timeline.

Uber’s unsuccessful bid for GrubHub was disappointing given the economies of scale and market share that the combined company would have commanded. Nonetheless, GrubHub can leverage Just Eat Takeaway’s stronger financial strength to grow its user base and expand its national footprint.

The recent round of acquisitions and partnerships realigns the U.S. delivery market leaving DoorDash, Uber-Postmates, and Grubhub-Just Eat Takeaway to compete for market share. Less fragmentation and more rational pricing will hopefully lead the sector to the holy grail: profitability.

Late last year Uber announced plans to buy a majority stake in online grocery provider

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