说话者看好PLTR的基本面和相对增长的估值，但因缺乏对业务/技术的理解而拒绝投资。

I saw Palanteer as the poster child of overvalued companies for a long time. But after looking into it, I actually believe Palanteer has never been more attractive than today.

Well, to be clear, it's far from a value play. And last year, Palanteer traded at twice the multiple with half the growth. And that has completely shifted now.

And we also want to explain how Palenty actually works and why there's no competitor inside.

Personally, I I think I could use a brief explanation of what exactly Pounder does. I I can't really say I have a good idea of what they do. It's a very enigmatic company.

So, to give a first quick example, let's imagine any large organization, right? It could be an airline, it could be a hospital, it could be a car manufacturer or the army, which is actually a big client, but it could be anything else, too.

So, what do they actually do and what do they sell? And then you know just stay with the airline they would tell you where's the airplane, where's the part that you need, where's the crew, where are the passengers and the connections between all of those and they call it things.

So all of these things are now connected on what you sort of can imagine as a map. And crucially the software also knows who is allowed to do certain things. So, you know, rebook a passenger, assign a different crew, route an aircraft somewhere else.

So, you can imagine it as looking at this map that knows everything that's happening in real time. That's what Palanteer calls the ontology. And you might think, well, isn't this just a database? Because that's what, you know, came to my mind first. But the difference is that what Palanteer builds is not only facts. So, you know, the plane's tail number for example or passenger seat, but also the relationship and the actions between all of these things that I mentioned.

So Palanteer system knows that passenger X is on this particular airplane which needs this particular part which is fitted by this particular crew. That's how you can imagine it.

It also knows that rebooking is an action that exists. So who is permitted to approve it? They know that. And what else has to happen when it does? So the combination of all of these things is what Palanteer calls an ontology. And the ontology is what we'll talk about today quite often.

So again, if you just have to have something in mind, think of a map that has everything that you could imagine on it and basically knows who is who and what is somebody allowed to do. So it's easier to communicate.

So basically you have this all- knowing map or ontology layer as they refer to it and that always basically knows what's going on and what has to happen next and who can make that happen.

And so, gosh, it kind of reminds me of something that would be part of a Hollywood movie, like some action movie where the lead roles are out there in the field fighting the bad guys and then there's like this control center that always knows exactly what's going on and is like feeding them advice. That's what I think of when I think of Palunteer.

That's probably not that far off, especially when you think about the surveillance and defense work. So Palante was founded in 2003 by Peter Teal, Alex Cop, who is also the current CEO, Joey Lundale, Steven Cohen, and Nathan Gaddings.

And the idea actually goes back to one of our favorite companies of all time, PayPal. But obviously Peter Teal who also founded PayPal the company and he repeatedly had problems with fraud.

And then something happened in the US and that was 9/11. And it became clear that US agencies generally had all the information they needed to stop the attack from happening. But the information was scattered across different agencies that couldn't bring it all together in time.

Again, going back to this ontology idea, they had all the information, but it was not on one map. They didn't know who can communicate to who. And that was the idea. And that's why and also how Peter Teal got the idea for Palenteer because he thought what if you could build a system that connects all of these fragmented seemingly unrelated data points to map out hidden criminal behavior similar to what he did with PayPal just on a whole another scale.

Do you know why Peter Teal isn't the CEO of Palunteer or why he didn't want to be CEO? because as far as I know, he chose Alex Karp early on to run the business and take more of a fundraiser and advisory role, but he also owns the largest individual stake in Palunteer at about 4% in Alex Karp holds two and a half%. So, he has the most skin in the game of anyone.

I think we all don't fully know what goes on in Peter Thiel's mind, but I would say there's something to say about that being a strategic choice as well. Um, that, you know, Peter Thiel might not be the best person for the CEO job. He had the vision certainly, but he might not been the guy who, you know, wants to be the CEO of the company.

Actually, you know, if you think about PayPal, he wasn't the CEO there either for a very long time. And he just generally tends to work more on building new stuff and maybe gaining influence in both the tech founder world, but then also in politics, which seems to be more interesting to him nowadays.

And I would say that's at least how it seems to me. And I don't know as well as you what Peter Teal's reputation is in the US, but I can tell you that it's not that great here in Germany.

And I'm sure there's more of a spotlight on him since he was born in Germany. That could be one of the reasons. But I think, you know, getting international deals with governments might just be easier, especially considering the sensitive information needed if Peter Teal is not the CEO.

Although, I got to say, Alex Cop is probably on his best way of getting an equally bad reputation. And again, he might be viewed more critically here in Germany, too, because he actually lived here and he studied here for over a decade.

Um actually fun fact he got his PhD at the Gertie University which is also where I studied and his doctoral adviser was the famous German philosopher Jurgamas.

Wow. So Stanford first and then go to university. I I didn't realize how strong that German connection is that runs through through Palunteer. And for Peter Teal gosh I mean he's he's controversial of course rightly or wrongly he gets caught up in a lot of conspiracy theories.

And I have to admit, he he does give off like super villain vibes, [laughter] which doesn't pair very well at all for a company that is really generally working to increase government and corporate surveillance in in some sense.

But whenever I think about Palunteer, I don't know, again, like the Empire from Star Wars comes to mind, you know, like the bad guys, Palunteer and Peter Teal.

Uh they probably both need a lot of PR help. some sort of rebranding would would go a long way.

But again, it also goes without saying that Peter is hugely respected in the investment community and and in Silicon Valley and his book 0ero to one is one of my favorite investing books ever. And if you read that book and then you look at Palanteer, I think it gives you an idea of what the philosophy behind founding that company was.

Besides Peter Teal, who bankrolled an initial cost of $30 million for this company, Inqell, the CIA's venture arm, also put in $2 million,

which doesn't sound like a lot when you compare to Palanteer's size today, which is depending on the day, between $350 and $400 billion.

But it was less about the $2 million and more about the access, you know, that you get to the government sector if you're sort of sponsored by, you know, the venture arm of the CIA.

They actually introduced Palanteer to working for most of these intelligence agencies but also analysts. And for a good two years, Palanteer basically built the product, their only product just for this one client.

You said it casually there, but there's a a venture arm to the CIA. That's something uh I'm going to be researching more after this episode. That sounds really uh really interesting to learn more about what kind of venture bets the CIA makes.

But you you said two years. Is that how long it takes to onboard a customer for Palunteer?

>> Well, it used to and and that's actually quite interesting because the long onboarding time is why Palanteer actually looked like a failed company just a couple of years ago. So, first of all, why does it take so long to onboard a customer to Palanteer?

As we said earlier, the ontology layer is basically a digital twin of a customer's entire organization. So, you need to understand every single little detail of a corporation. That's a huge one that takes a lot of time.

And the setup was that Palanteer had two kinds of engineers. So there were product engineers who built the actual software. And then there were so-called forward deployed engineers or FDEEs who flew out to the customer and worked from the customer's offices for at least 3 to 4 days a week.

And that could easily take a long time. I mean, not necessarily two years anymore, but it can still take months until they've actually finished their job.

And on the ground work is what costs so much time. I've gone through quite a lot of reports from ex Palunteer employees where they walk through their experiences basically and many of them mention what we said above which is that before AI Palunteer was even seen as a fake SAS company because basically many people thought of them just like enterprise consultants and not much more because you know they travel to the client they work with them and they deploy some software you know how much or how difficult can that actually be

that's because a lot of what they do is on the ground work you know just figuring out how things work how things work together and what works and what doesn't inside the company and all that sort of stuff.

And so it seems like Palunteer has maybe done something similar. Actually also thought of Coaster when I heard about this, but obviously what Palanteer does is 100 times more difficult.

I mean, the biggest problem is that the data it needs to create these digital twins and highly capable and actionable databases is scattered across the entire company. And often the data is only halfway digitized, too. So, I don't know, think about handwritten documents that were scanned to a PDF, but as you would know, that still makes it unarchable, right? It's digitized, but you cannot just search it up, which makes things just way more complicated. And that's just one out of 100 possible problems.

and another very interesting part is that many ex employees described internal politics as one of the toughest hurdles. So before Palanteer comes in everybody is doing their own thing and because of inertia and perhaps also the fear that you just won't be needed any longer when Palanteer software actually exists many times the middle management more or less refuses to hand out the actually important data.

So again, the stories you can read about that are actually quite funny and I might link to some of them in the show notes. But of course, they, you know, can blatantly refuse to give out the data when the company has actually hired Palanteer to work with them. But they will just come up with these, you know, little excuses and like this specific database can't be accessed because, you know, security protocols or maybe they just literally keep delaying the meetings and, you know, cancel on calls. That's the stuff that people did in the past.

It sounds like it's just more difficult than one would assume to to actually get the data to even start the process of this ontology layer and and mapping the entire business. And what's really interesting to me when I look at the numbers for Palunteer is that there was actually a period of time here where growth slowed down a lot.

And that was pre-AI, I guess, you know, pre- chat GBT at least. And and we just talked off the record about why that happened. And you said that the entire process of onboarding and using Palunteer was was so complex that it really hindered their growth.

And so if you look at the growth chart now of Palunteer's revenue, you basically saw growth decelerate from 2019 through about halfway through 2023 where year-over-year revenue growth was as low as 12%.

But then from there on uh it's accelerated dramatically like a rocket ship and we're talking about 100% year-over-year growth. you know, doubling revenues every year. >> It's pretty insane. we should start talking about the four platforms that Palanteer has. So, they're calling them Gotham, Foundry, Apollo, and AIP.

And Gotham was the first platform that Palanteer built. And it took about 5 years of, you know, consistent updating and improving. It was part of the first project that they did for the government agencies. And was built for, you know, as I said, intelligence generally.

So that work started in 2003 and it was based on solving the problems primarily leading to 9/11 and Gotham is basically the part that creates the digital twins for defense agencies

you know while Foundry is primarily a platform that was built in way later 2016 so 13 years later actually and they build digital twins for corporate operations and both of them sit on and now it gets a bit complicated both of them sit on Apollo and Apollo is just sort of a deployment engine so you know whenever a new update drops Apollo is shipping it to Gotham Foundry and also AIP.

And you might think, okay, well, why do you need a deployment engine? Is it so difficult to just get an update? But if you think about all the silos that the data is sitting in, you know, on the one hand, you have intelligence agencies. On the other hand, you have huge corporations. It's not just one click of hey, we have an update, you can click here and you get it. It's way more complicated than that.

But the real game changer was AIP which is you know a very smart name for the AI platform AIP that was you know an abbreviation that I think most of us could also come up with but it actually changed the game for how Palanteer approach customers and also how efficiently the software can be run on each of those platforms.

One of the things they did is they started to run boot camps, right? They they basically invited a bunch of CEOs and and CIOS from potential clients to to showcase what Palunteer can do.

And these boot camps are really set up to prove that Palunteer can in fact really help almost any type of company. And it's important to say that Palunteer paid for those workshops out of their own pockets. So companies that attended took on no risk except for, as you said, handing over data.

And you could probably say that this was a turning point that you alluded to when you talked about the numbers and growth going down to as much as 12% in 2023 because AIP made using and also onboarding so much easier that Palanteer suddenly exploded.

In fact, customer account growth has actually come down from about 50% in 2024 to about half of that lately. But the money existing customers spent with Palanteer increased significantly.

And that metric increased from a low of about 100% in 2023, which basically means they spent as much this year as they have last year to almost 160% in the last quarter. So for every dollar spent last year, a customer now spends $1.60.

Incredible thing with Palunteer is that all this growth, which is pretty much unheard of for a company of this size, did not come with any margin compression. It didn't take any major marketing expenses or or anything else that they really needed to invest in to scale the business dramatically to accelerate this growth. and profit margins expanded alongside their topline growth metrics, which is of course an explosive recipe for shareholder value creation.

And so back in 2023 when growth slowed down pretty materially, the company was barely breaking even with a net profit margin of, you know, just about 3 to 4%. Which is pretty modest. Today though, net profit margins are 60% or almost there.

And so you have this double engine of incredible growth on the top line paired with this incredible margin profile and a huge I mean a tremendous amount of operating leverage. I think that's the biggest swing in in margin profitability that I've seen from revenue scaling from maybe any company besides Uber, which is one of our favorites.

and palenteer showed both of that to an incredible extent

Now for Palanteer that number is not 40% it's 155% 65% in profit margins and 90% topline growth and if you believe COB and you know the guidance this will get even better in the next quarters and I cannot say it enough this is an insane number if you look at it the first time

and that's also the case because Palanteer only goes for big customers with significant upsell potential which is as I mentioned before what the overall customer count of only 1,000 seems quite low. I mean, Palante's average deal size is in the millions. And just this quarter, they closed 220 deals of at least a million dollars. Close to 100 of those was at least $5 million. And more than 70 deals were at least $10 million.

but Palanteer is only going for those big ones. They're not even trying to win those smaller ones, which is why the customer account generally is not accelerating as fast as the volume. So, gaining 42 new customers might not seem that impressive, but closing $220 million deals, that's pretty impressive. And that's why net dollar retention is so high and why Palanteer is growing like a weed.

words really don't do it justice and and that's why the market has I think rightly put absurd multiples on Palunteer because the multiples look absurd because they're based on trailing earnings and they're not accounting for or not reflecting the future growth that it seems like is been you know very possible for Palunteer

and so you had the stock at times trading at like a 100 times sales which again sounds ridiculous and we'll talk about valuation later but when you're growing at this incred incredible rate and there's such a large addressable market for you to continue to roll these services into. It starts to feel a whole lot less crazy for the stock be trading at 100 times trailing sales emphasis on on trailing.

We will talk about it later and I don't want to spoil anything but I can say that Palanteer is actually as attractively valued as ever. Even though the multiples look, you know, kind of scary at first

There is more to it than you know you would think looking at a headline P as you just said and I got to say still I'm a bit mad because when I first looked at Palanteer which has been about a couple of weeks ago I thought this looks like a pretty good opportunity and then earnings came up and suddenly the stock went up 40%. And I got to say that was a bummer.

And I think many people are surprised if they listen to this episode and the value guys suddenly like Palanteer. But again, when we go to the valuation and also, you know, all this stuff now that comes to just the qualitative factors of the company, I feel like people will understand why we like the idea so much right now.

Yeah, it's hard to say that the valuation is as attractive when it's jumped up 40%. But also it's a great testament to the fact that pounder is just continuing to perform and absolutely blow out the numbers of any kind of estimates that people think of are possible and so judged by Karp's growth outlook even after that jump there might still be an opportunity there.

So talking about the latest earnings release, my question for you is does Palunteer report which platform is driving the most profit or is growing the fastest? Is there any insights that we get into that? >> Unfortunately not. Unfortunately not. We only get to see the split between commercial and government revenues as well as a breakdown by geography.

And you can generally say that government and commercial growth are pretty much in line which is something that I like to see because it also reduces Palanteer's dependency on government contracts which at least in my opinion can be a bit more of a volatile field depending on within the White House and also internationally that's a similar more volatile field to play in

and in the last few quarters commercial has actually outpaced government but this has shifted in the past. So perhaps we'll see that shift again and I wouldn't expect commercial to grow more in the long run just given that the universe of customers is obviously larger and Palanteer has improved significantly which is what we discussed in the onboarding of customers. So I would be surprised if we don't see that outpacing government in the long run at least

and also looking at the EBIT of both sectors. So the earnings before interest and taxes which is a profit proxy you can also see that Palanteer has a similar margin for both government and commercial. So it's not like one of them is significantly more or less profitable than the other.

There is a significant difference here between growth in the US and the international markets. And the US growth has more than 9xed since 2023, which is so absurd. And it's up 115% year-over-year this past quarter. While international growth has definitely been much more volatile and it's currently sitting at 30% which for any other company on the planet would sound very impressive but for Palunteer it does not sound very impressive

and so my question I guess is is that primarily because of Palunteer's poor reputation internationally or what really is the reason for that? Is there any kind of explanation there? I' I've read that Palunteer systems were critical to helping the US government for example track down bin Laden back in the day. So, if anything, I'm actually kind of surprised that the company's even allowed to work with international clients and even commercial clients based on the company's importance to the Pentagon and access to to national security data.

We'll get to that later, but it's actually quite fascinating story, for example, why Palente is allowed to work with, you know, European customers and also the the corporate space.

And generally, I would say it's a mix of things. So there's certainly a European resistance to being reliant on American companies, especially when it's about data management on the level that Palanteer practices it.

I mean, both France and the UK have recently ended deals with Palanteer to go for local solutions that I think do not yet exist, but they want to build them. We'll see how that plays out.

Um, but there are also, you know, sales and market dynamics that we have seen in other markets like, you know, cloud computing or even now AI where adoption just takes longer in Europe. And given how closely Palanteer has to work with its clients, you can probably also just not hop on a Zoom call and then onboard the client at the new software. So you need boots on the ground. And while Palanteer has offices in most major cities in Europe, I would assume there's much less capacity there compared to the US.

And I think COP's relationship and that's what I'm you know talking about earlier with other countries is also a bit difficult. I think he lately said in an interview that he just likes to support Europe's institutions otherwise he wouldn't even make any business there because quote the growth sucks.

So I don't know think about that whatever you want but I guess the fact that Europe has been growing much slower than the US is another major reason for why US numbers for Palanteer are just better. And by the way, on the last earrings call, because we talked about guidance, for example, here, Alex Karp said that he will grow the business at a rate equal or above what the US commercial business is doing for the next 18 months. And just for context, that would imply a growth rate of about 150%. And even if he only reaches, you know, let's say 100%. That would take Palanteer to 17 or $18 billion in revenue at the end of 2027, which is insane.

Even if I don't exactly understand what Palunteer does or what makes them so special compared to other consulting and data businesses, the financial fundamentals in the business itself are looking really really good.

But again, I'm still asking myself this question. Why is there no one that seems to be able to copy what Palanteer is doing? Couldn't they do what what Palunteer has done with their suite of products and especially the connections into the enterprise universe that they already have? You would think they might be able to to build on that and and create some kind of ontology similar to Palunteer.

Yeah, this will be probably the most important point of this episode and it's not easy primarily because a lot of parental parent's advantage seems to come down to execution which is always a bit difficult to talk about and judge if you you know as you said on the outside

but I will try my best and probably the first thing I have to talk about it's the switching cost mode you know we talked about how Palanteer creates the ontology and how long all of that can take and well once you go through that multimonth or even year-long process I think you will think twice about switching and doing it all over again.

And since Palanteer has by far been a first mover here, right? There's no competition that has come up even remotely in the last two years. They just built a massive client base before anyone else can start.

And especially if you think about who are those customers. It's not only a thousand customers that you have, but you have the biggest corporations and you have the government. So those are contracts that if they are multi-year long, I think it's just incredibly difficult to get into that sort of space and compete

this company has a very unique culture. There's just not really a hierarchy as it seems and people can do what they believe creates most value at the time and of course there are limits to that as always but that's how it generally seems to work

and then when you look at it from just the product side it basically goes against all industry wisdom right

Palanteer sort of changed that dynamic. And so that's lower value per transaction than what Palanteer does, but it is much higher volume.

And so it's sort of like Palunteer is a more comprehensive AI native version of Salesforce almost at least in terms of its importance to enterprise productivity.

And it sounds like Palunteer have developed a really specialized machine learning technology set well ahead of the AI craze of the past few years and primarily targeted it at the government and military.

But now growth is exploding as they've rolled out this model to commercial customers.

I've seen estimates that Palunteer could have as much as a $2 trillion addressable market. I think it's safe to say that Palente has not yet been tested by competition,

And I should also say that Palanteer is not taking their market. So Google can sell their bundle just like they did in the past and Microsoft can do the same. So they're not necessarily competing.

But I think in this case, I don't know. I think they're way too bloated and just not flexible enough to compete with a company like Palanteer on that ontology front.

I mean, I told you before that if you ask yourself which of these companies should have actually sent out FTEES, these forward deployed engineers to enterprise customers to set up their tools. I think none of them would have done that.

All of them would have settled for keeping the engineers inhouse and deploy them for their software solutions where they make 60% margins right

I don't see it rivaling Palante anytime soon But this is so far away from what Palanteer is building for the highest class customers that I think it's a reach to say that this will compete with Palanteer anytime soon.

What Palanteer is doing it creates those relationships. You know it's saying we know that there are these things you know XYZ and they have permission to do certain things. Now how can we connect that to the entire rest of the map so that it makes sense.

It's just hard to imagine but way more complicated than what any of these SAS companies are currently doing. a service now is good at managing data that is already set in place where Palanteer is basically taking raw data from all sorts of places and then creates a relationship in all of that itself.

Maybe AI enables them to map things in a way that only Palinger was able to do, but now that technology has been more democratized. maybe you won't be able to do it as well as Palunteer, but for a fraction of the cost and with different AI tools, perhaps it's good enough.

I think the reason it might be more popular today is that Palanteer showed companies just how inefficient they actually are with their data management. And now that AI is there and seeing what AIP is doing for Palanteer, I think that just makes them realize there's so much more that they can get out of their data and so much more efficiency gains that they could get.

Um, and also, you know, cost savings, which is one of the biggest things that customers of Palanteer are actually reporting about. I think in-house solutions are to some extent wishful thinking.

that's why I talked about hey palanteers going out there and befriending for a lack of a better word the seauite first and then the project workers instead of the middle management because that's where a lot of the resistance for new stuff actually comes up.

And then if you would think about who is building these in-house solutions, well, it almost has to be the middle management, right? The CEO can maybe say that's what we want to do, but then the middle management has to take that idea and deploy it in their own department. And I don't think that will happen.

It hasn't happened in the last decade. I think it's still unlikely. I wonder if something is lost in translation as they change their playbook to accommodate more types of enterprises.

And so I mean you can't befriend the seauite of every single customer you have if you want to be a trillion dollar company. I think they noticed that it's not that scalable in 2023 when you know the growth has going down to 12%.

And that's why they started the workshops you know where they said well if we go out to all of those companies and we befriend the seauite that takes a lot of time you know time that is inefficiently spent to some extent.

So why do we not just give them proof of concept we invite them after Palanteer was better known in the enterprise space now they are coming over so they already sort of in the realm of becoming customer of Palanteer now they're in the workshop now Palanteer is showcasing their product and that's how you you know scale significantly better

I think I heard that they had over a thousand workshops already and mind you there are CEOs and CIOS sitting in all of them so you can sort of see the scale of this new approach

I'm wondering now what model does Palunteer even use? They had their own LLM or are they using OpenAI and Anthropic themselves?

And you know, I wonder what the competitive dynamics between them are and how that that could evolve over time. Yeah, that's a good question because it's actually an important point. I mean, Palency does not have its own model. It uses a variety of models out there and it basically depends on the customer which model they want to use and maybe also they change between them.

So Palanteer itself offers you know Claude, Chad Gupt but also Gemini, Mistral, Llama and basically whatever model is out there.

The magic of Palanteer really comes from the context that the ontology creates.

In this case, in some cases, for example, you know, Jeff, you were asking about what happens in palenteering, right? The LLM is still the actual reasoning and planning part of it, right? But the agent harness now involves data that comes from your databases. The ontology now becomes a thing that the ag that you can provide to the agent and say, here's the ontology of how my data sets look like, right? Here's where I have my inventory data. Here's where I have my supplier information. Here's where I have my XYZ information. And

when the stock was going from $20 to $170. But, as we're looking forward and thinking about our decision today, it's definitely a headwind. I'm not sure how excited I would be to see them buying back stock at 150 times earnings or 100 times sales. You know, overpaying to retire shares if you believe that pounder is overvalued, that can be quite destructive to shareholder value. Even if it's somewhat mentally reassuring to see, hey, there's buybacks going toward offsetting dilution. Again, like I said, if you're dramatically overpaying well above intrinsic value, you are destroying value for shareholders, which is, you know, a little abstract, a little bit uh academic, but it is, I think, there's truth to that that idea.

And by the way, if you're asking yourself, well, aren't you guys bullish on Palente? You're talking about that for 60 minutes now. So, wouldn't you think that it's attractive to buy back shares at today's prices? I should really clarify again that last year and the year before that, the story was completely different. So, Palenty actually changed compared to last year because growth has accelerated so much and the valuation has come down that I do believe it's attractive here and especially it has been before the earnings release just a year ago or two years ago. I considered it rightfully so I believe to be one of the most expensive companies in the market and it probably would have been a good shot.

But what I asked myself in terms of capital allocation is why does Palanty not invest more money in their workforce? Especially given that they always say they have so much more demand for their products and they keep generating more revenue per user. So I just feel that an investment in the workforce would seem like quite a good investment.

What Palanteer does instead and I talked to you before recording about this I don't fully understand it is that it partners with the consultancy firm Accenture and basically they use Accenture employees as forward deployed engineers. So Accenture trains its own consultants on Foundry and NIP. So they obviously have a better idea of what Palanteer is and the average Accenture consultant but still those people then do the deployment work at the customer side and Palanteer sells the software license. On paper, it makes sense because they keep the high margin revenue, but I feel like that doesn't fully make sense because you feel like Palanteer is only hiring these highly talented people because a lot of the work that they do is going to the company, figuring out how it works, doing all the politics, and then getting the ontology. And now it seems like you can just get a thousand, you know, nothing against people who work at Accenture. Please don't misunderstand that, but you can just get people from Accenture who don't understand Palanteer to the same level than Palanteer engineers and they do the work for you. And again, it's not a small amount of people. For context, Palanteer has about 4,500 employees.

how about we transition to talking about valuation now? I'm I'm very curious to hear how you think about this as a value investor, but also as someone who seems quite excited by Palunteer's technology and and the growth. Um it it is really uh riveting. And so admittedly, I would have dismissed Palunteer as being a hopelessly overvalued meme stock, but you already told me before recording that there is maybe the chance for legitimately attractive entry points in this stock, especially with how volatile it is.

You know, as I say today multiple times in the episode, and obviously again, you don't have a value stock here. I'm fully aware of that. But you really got to put the valuation into perspective considering the incredible growth. And if COP is actually right about being able to grow Palanteer overall at the current rate of the US business until the end of 2027, well then the price to sales ratio would decline from where it is today, which is about 60 to about 20. And then it pretty much all depends on you know the growth rate in 2028 and 2029. And of course this is speculative but CB has always delivered up until now on the guidance that he gave. And of course you could argue this is not really a guidance but something that he said in an interview but I would just assume or take it for granted here that this is what he actually aims to achieve. And analysts have massively underestimated Palanteer again and again.

And I should say that if you think of world press sales it's not the most useful metrics. Generally I agree with you but I think it makes the point here quite well because Palanteer has incredibly high margin. So when the average enterprise software company is trading at about you know 7 time sales on roughly a 20% operating margin that's a 35x on operating profit. Now if Palanteer on its assumed 227 numbers would be about 22 times sales but that has a 60% margin that would also result in 35 times operating profit. So the massive growth and the margins make Palanteer relatively at least to other software companies look more expensive today than it actually might be.

That just shows the power of of having high operating leverage and and and higher profit margins. And again, like you said, it's not a value play, but it's also not as ridiculously priced as I would have thought.

I think the only thing we can do to convince people here is actually jump into the model. So I built two base cases this time. One with the numbers that car predicts until the end of 2027 and one with the analyst estimate. So of course it's a 5-year model. So everything after 2027 is still obviously my own estimate but still in the first base case using carbs growth rate of about 150% for next year. IDK growth after that personally to 60% and then 15 to 20 percentage points per year lower. So we would end up with you know 28% growth in 2031. You know just summarizing that because that's a lot of numbers the revenue keer in this model would be in the high50s for the next 5 years. For comparison though the second base case built up on analyst estimates works with a revenue k of only 22%. So I keep margins in both cases relatively stable which is about 60% operating margin. You could say, well, if there's more competition, so let's say Anthropic gets into the market, Microsoft gets into the market, the margin will be pressured, it's possible, but at this point, it's completely speculative whether that would actually happen. So, let's just assume a 60% margin here. If you then go with the analyst estimates and you apply a 30x exit multiple and a 10% discount rate with a 20% marginal safety, which is what we usually do, you would get a fair value of $90. if you trust COP's estimates and slightly higher growth afterward compared to analysts. And when I say slightly higher, we're talking a difference about 10 percentage points per year. So, you could argue it's significantly higher. The fair value is at about $240 a year. So, a significant difference and way more than the stock is currently trading at.

Looking at your model, you also adjust for dilution with share count growth of 1% annually, even though we talked about stockbased comp being in the double digit percentages. And so you don't have buybacks or dividends either in your model. So it seems like you don't think Palunteer will will be paying cash to shareholders or doing any kind of capital returns.

Yes, I think um you will not see any buybacks or dividends anytime soon. By the way, I've also done the model with more dilutions. So 1.5% 2.5% a year just because of the growth. It doesn't change your return massively especially in COP scenario. If you think just about the analyst estimates, there's more of a change.

But yes, to your point, I think over a dilution of about 1 to 1.5% a year, which is in line with the last couple of years. I should say that. And no buybacks and no dividends. Well, I gotta say, you got me excited here. I I didn't expect to end up liking Palunteer at all, but I'm I'm just so intrigued. It's maybe one of the most interesting companies that we've come across from both a financial perspective and also a non-financial perspective when you get into the philosophy and and the people involved with the business and the types of projects that they worked on, right? We're talking about a company that helped track down Bin Laden. So it's just really unique and uh yeah after today's episode I I can definitely understand why you have felt some excitement too about looking at Palunteer. So with all that said I assume that you are going to recommend not investing in it nonetheless.

Well I was closer to wanting to invest before earnings. I got to say that. But even then and this sort of goes back to the learnings that we discussed in our biggest loser episodes. Palante's outcome is almost completely dependent on its topline growth. And one thing that I like to do when I look at companies that are growing rapidly and everything looks great at the surface is that I come up with a scenario in my head which basically goes like this. So I would assume the next earnings report is coming out and then growth is cut in half from what people are expecting. So let's assume you know COB's outcome 150% growth. Now suddenly you only get 75%. Would I think I'm confident enough to be able to figure out and explain why the company grew significantly slower than people anticipated?

And I think if I'm being honest with myself, Palanteer has to fall into that category. I think when the business is doing great and it's growing, everyone has this illusion of knowing and understanding why it's growing so great. But if that was suddenly changing, I'm just not sure how many would still claim to understand the business that well. I think the entire story here comes down to does it make sense for me and do I fully understand the technology behind it? And just to make it clear, I feel like you don't need to understand everything. If you for example work in this sector and you have a much better understanding of how the industry generally works. I think that's not the case for you and I Sean. Um I think the two of us would probably be better off sitting on the sidelines just admiring what Palanteer is doing and not investing today.

We uh the value investors here uh two guys who are very inspired by Buffett and Munger didn't want to invest in in Palunteer. I don't I don't think that's a shock, but also that doesn't mean pounder won't continue to do well. I if anything, my gut feeling is that the company probably will do very well and probably the stock will too. I don't know about from current prices, but um if there's a sell-off in it, that could be a really interesting entry point for folks who are willing to to speculate more.

And uh as you said, if you don't really understand what drives the business, then to me, you're not investing. To be an investor, that really means you have to think like an owner and feel like you understand all of the variables affecting the business. And so, if you're just buying a stock and you don't have that owner mindset and that understanding of what is driving things, uh well, then you're just speculating. And and speculating can be profitable or it can be quite costly. But our aim first and foremost is to be disciplined investors. And so if we're going to adhere to that then uh yeah we can't invest in something like Palunteer even if it's very exciting at least not today.

I think if Palanteer keeps chugging along like this and we have some people especially in our mastermind community that will most likely understand this business much better than the two of us do. So I could see myself with you know a couple of talks understanding the business a bit better seeing even more proof of what they do even better understanding what the ontology means and whether that is actually copyable for other competitors. I think all of that means I could have it on the watch list and at the right price and especially the right understanding of me and the company I could see as investing in it generally I wouldn't say that it's a stock that I would never put money in. It's primarily about how well do I understand the stock right now and also where is it trading again even at 130 bucks which was you know the price before earnings I think was not cheap but it was kind of reasonable if you believe in the growth I think today um a lot of that opportunity is basically gone and you know if you see the stock below $100 and nothing changes count me in and I would be way more interested to to kind of say it with Buffett in terms of your philosophy of you know speculation and investing.

Buffett said, quote, "The line separating investment and speculation, which is never bright and clear, becomes blurred further when most market participants have recently enjoyed triumphs. Nothing today's rationality like large doses of effortless money. And I would say that you have a lot of people in Palanteer who made a lot of money, and I'm glad for all of them, but many of them might not understand the stock to at least the extent that the two of us would want to understand a stock when we invest. Again, it's up 2400% from the 2023 lows. So, it's only natural that some people are okay with some blind spots in their thesis.