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Palantir soars on first day of trading

Palantir Co-Founder Joe Lonsdale joins Yahoo Finance’s Zack Guzman to discuss the company's public debut.

Video Transcript

ZACK GUZMAN: What an exciting day of trading here when it comes to some big direct listings. We already showed you the action on Asana, the first one to come out here. And now, Palantir shares just a moment ago opening at $10 a share, valuing that company on a fully-diluted basis at $25.4 billion.

And a lot of question marks around this unique direct listing here, specifically when it comes to what this company exactly is. Is it a big data company? Is it a software company? Is it consulting firm?

Here to discuss that with us and where this company goes is Joe Lonsdale, Palantir co-founder, joins us now. And Joe, appreciate you joining us here just moments after shares begin trading.

JOE LONSDALE: Thanks Zack, I haven't--

ZACK GUZMAN: I want-- I want to pose the question to you first because, you know, we've gotten in arguments about what this company is and what exactly it does. But real quick-- just in one sentence, to you, what is Palantir?

JOE LONSDALE: Well, Palantir is a company that's taking some of the most talented, you know, technologists in the West and solving very hard problems around data and information to-- to allow, you know, institutions-- you know, both business and government to solve some of the most important problems.

ZACK GUZMAN: All right, we're gonna operate with that as the definition here for Palantir. But want to start on a focus on the fundamentals in terms of your guys' division of the business. Because you started out with contracts with the government in defense and intelligence through your Gotham arm. And you also have the Foundry, the corporate side of the business that's been growing quickly, focusing on big data problems in there.

And when we look at the growth, I mean, revenue up 25% year over year in 2019. So far, in 2020, it's up about 50%. You guys lost more than half a billion dollars last year. So when we talk about this company in scalability, where the growth comes from here. Talk to me about what those corporate customers you're working with in solving these issues, and how you can continue that growth moving forward.

JOE LONSDALE: Sure, well, you know, I'm not running the company these days. I'm a very proud founder. I think it's deceptive to talk about these giant losses. I mean, it was operating cash flow positive over the last 12 months is my understanding.

Obviously, you know, if you account for equity granted and whatnot, it's not quite fully evened out positive yet. But if you look at the growth, this is obviously a company that's-- that's showing higher margins. It's just showing-- it's showing off cash. And so-- so first of all, I think that's really important.

And then, you know, second of all, I think it is a really good question. It's very hard to understand, you know, what is-- is this-- is this something you-- a lot of people say, oh, are you doing consulting? And whatnot.

But, I mean, the core of Palantir-- I think this is really key to understand-- the core of Palantir, from the very beginning 17 years ago, was looking at these giant IT services contracts and saying, why do these things always take years? Why they go over budget? Can we create a product, can we create a platform that will replace the need, you know, to do these things as services? And to do them almost all as product instead.

ZACK GUZMAN: Yeah, I mean, you talk about how scalable this might be, and you know, you can point to that. And I know you're not running the company anymore, but when you talk about how scalable it could be as you look to grow the business, you're talking about where margins are at about 60% last year.

It's interesting because the Wall Street Journal was talking about the CEO Alex Karp traveling on a lot of these deals, and how long it might take for these deals to get through and put in place. And obviously these deals are in phases, as you talk about, but it seems like it might be tough to scale it when you're talking about individual systems for individual clients-- whether it be a BP or an Airbus-- so it doesn't necessarily strike me as-- as extremely scalable, as some of these other companies out there. But how can it be, as you get a better sense of how you implement these systems across the board?

JOE LONSDALE: Well, I mean, Alex is-- Alex is amazing. I was honored to build the company with him. It's-- His job is not to go and customize the software. His job is to go to work and understand what the hardest business problems are, in order to teach the people there to work with our side to know how to use the software to solve these problems.

And, you know, you-- you say-- you say how scalable is it? What Palantir has done is, it's taken things that normally would take an army of hundreds of engineers. And all of a sudden you could, like, take the software, and with two or three people, you could do what, you know, someone like an IBM, where it essentially would literally take 300 or 400 engineers to do, you do with three people.

That's not because our people are that much better-- there are better technologists that-- you know, we weren't ranked number one in Silicon Valley for [INAUDIBLE] technologists. But they're not actually sitting there doing it all themselves. The whole point is you've built something that does integration, that does collaboration-- the craziest information environments out-of-the-box.

And I think the best way to understand this is in the global pandemic this year, 35 countries use Palantir as a common operating picture. This is not because we have better networks than these older bigger companies-- we don't. We're outsiders. The reason is that we're the only technology that can work out-of-the-box right away to solve the problems they needed.

Because if they wanted to use their better friends at Excensure, their better friends at IBM, their better friends at all these other companies the [INAUDIBLE] that would've taken 6 to 12 months to get the answer, whereas Palantir could do it right away. So if anything, that really was a great example proving it was a product this year.

ZACK GUZMAN: Yeah, the interesting thing is, there's one country on that list that won't be working with Palantir. And you guys explain why in your S1, noting that you do not want to work with China, that you've chosen not to work with them. But, I mean, as we see shares up here-- now above $11-- obviously, there's a lot of enthusiasm here.

But one knock might be that you're excluding working with the fastest-growing economy in the world, set to overtake the US very soon. So how might that be a limiting factor in Palantir's upside? And why is that something that's so important to the company?

JOE LONSDALE: You know, there's-- there's well over $100 billion of IT [? spend ?] that currently is done in old-fashioned ways that can be captured and taken by Palantir all over the world. So I-- you know, as much as I'd like Palantir to-- to be a market leader in every-- every country in the world, I'm really proud to build a company that has the values and the principles where it will not work with certain governments, be it North Korea, Iran, China, Russia.

China's obviously a place that-- there's a lot of innovation. And I'd love for America and China to become great allies and to work together well. But as long as you have a CCP doing what it's doing in charge of China as a geopolitical rival, I think I'm very proud that Palantir is sticking to working with-- with America and America's interests.

ZACK GUZMAN: Yeah, that's what's interesting to me, too. Because when we think about what's going on in China-- I mean, maybe the communist party does have a monopoly when it comes to control within its own borders, but certainly doesn't have a monopoly over big brother tactics that could be misused.

As you know, Palantir's contracts with Immigration and Customs Enforcement have been criticized for aiding in workplace raids on immigrants here in this country. Interestingly, the human rights group Amnesty International said this just this week about your company, or the one that you co-founded, "Palantir touts its ethical commitment, saying it will never work with regimes that abuse human rights abroad. This is deeply ironic, given the company's willingness stateside to work directly with ICE, which has used its technology to execute harmful policies that target migrants and asylum-seekers."

And, I mean, you guys named the company Palantir for a reason. It's a reference to Lord of the Rings seeing-stones that fell into the wrong hands, that were used for evil ends. You said it serves as a reminder to the company to prevent that from happening here. But do you at least concede that maybe that could happen in working with the US, or perhaps some of our allies? And what might be done to stop that from occurring?

JOE LONSDALE: Sure. I mean, any company-- and there's thousands of companies that work with the DOD and that work with ICE and that work with others-- is gonna face these challenges, you know. The principles of the company as I understand them is that we don't believe that the people living in Silicon Valley should be in charge of US policy. And that, you know, for me, overall, I believe the US is a force for good in the world.

Is the US perfect? No. And it's all of our jobs to try to make the US better. But am I going to support the US? And am I going to, you know-- are we-- is this-- should the company have done a contract with the Obama administration, along with lots of other contracts, as it did, to work with ICE? I think that was the right choice overall.

I'm happy to know the company, you know, working with ICE has actually helped stop huge numbers of, you know, child traffickers, and, you know, prevent all sorts of crimes. So I think people misunderstand actually what the company is being used for there.

But either way, do I think that Palantir, or Silicon Valley, should be in charge of US policy? No. Should we fight to continue to make US policy better? Yes, I think that's a great thing to do.

ZACK GUZMAN: Yeah, it's a unique question that isn't really posed to other companies out there. Palantir, one of those unique companies that's working with the US government on contracts like these involving some very interesting data. But clearly, investors on day one shrugging off those concerns as we see shares trade well above $10 here, giving the company valuation north of $25 billion dollars. But Joe Lansdale, I appreciate you coming on here, and congrats on getting out there as a publicly-listed company.