In this episode of Industry Focus: Tech, Dylan Lewis is joined by Motley Fool analyst Brian Feroldi to take a closer look into Palantir Technologies (NYSE:PLTR) and its direct listing on a public exchange. They talk about the origins of the company and its strong management credentials. Discover the company's business strategy and products and the unique competitive advantage it has in the space. They also go into the current share ownership structure, the company's financials, and much more.

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This video was recorded on October 2, 2020.

Dylan Lewis: It's Friday, October 2nd, and we are talking about the most controversial tech stock of 2020. I'm your host Dylan Lewis, and I'm joined by Fool.com's plane provider of pre-published picture proof Brian Feroldi. Brian, how is it going?

Brian Feroldi: Dylan, happy to be back again talking about a high growth company after last week's show [laughs] where we talked about the exact opposite of that.

Lewis: [laughs] You know, I can feel it in your energy levels, you know, we were talking about value stocks last week, it got you down, we're back in the growth space, and I'm happy that you're excited.

Feroldi: And we're talking about a brand-new direct listing, repeat that, brand-new direct listing, not an IPO, Palantir Technologies. A company that I had heard of prior to this, I didn't think this company was ever going to come public, so color me surprised that it is. And surprise! It's an interesting business.

Lewis: It's a very interesting business. It's been called the most secretive start-up in Silicon Valley; it is, kind of, in this odd space of tech and defense contractor; it has some big, big names backing it. So, people that have been following the unicorn space, these highly valued private companies, probably know this name already, but for folks who don't, we're going to do a rundown, we're going to basically take it through Brian's checklist, and give an overview.

We start out with the simple stuff, Brian. Palantir, trading under the ticker PLTR, just about a $15 billion to $20 billion company. I think they debut at about $20 billion, they're down around $15 billion or so now.

Feroldi: Okay. Yeah, that's a pretty sizable business; you can understand why this was called a unicorn. This company was founded in 2003 by Peter Thiel, Alexander Karp -- who is currently the CEO -- and Stephen Cohen. All three co-founders are still with the business today. Thiel is the Chairman; Stephen Cohen is the President; Alexander Karp is the CEO. The idea here was actually, I think, Peter Thiel's brainchild. Peter Thiel was the famous Founder of PayPal, also an early investor in Facebook.

Well, at PayPal, you know, fraud detection was a major part of PayPal's success. When you're moving money back-and-forth, you really have to do a lot of work to make sure that fraud isn't happening, his idea was to take a PayPal-like approach to use that technology to fight terrorism. That was the kind of brainchild behind Palantir. And obviously, the company has been extremely successful.

Lewis: Yeah, it has. And it's got some big names backing it, so maybe no surprise that it started out with a little bit of a head start there. But I think they really saw an opportunity with this business to focus on government contracts, in particular. And really kind of maybe working in a space that tech didn't focus on nearly as much, certainly back when this company was founded, but definitely even now. But that was a huge part of the original story with this company. We're going to focus on basically the defense space, the counterterrorism space. And I believe, the CIA nonprofit venture arm was where they got a lot of their early funding. So, the early days of this business looks a lot different than most companies that we talk about on the show.

Feroldi: Yeah. And at its core this is a software company that is focused on big data and big data analytics. With their early funding directly related to the CIA, they focused entirely on the intelligence community in the U.S. What excited me about that was that they say that they are competing against, essentially, homegrown solutions. Software like this didn't really exist before Palantir came along. It's taken them a tremendous amount of work and effort to get inside some of these companies, because selling to [laughs] the CIA, the FBI, that must be an enormously long and complex process, but I do really like that they are kind of a one of a kind in the software space.

Lewis: And you mentioned the direct listing, we should emphasize that this is a little different than the IPO. You might see it thrown out there, a lot of people will, kind of, use IPO as shorthand even for things that are direct listings. The process is a little bit different, but we didn't see that pop that we've noticed with so many of these companies that have gone through the IPO route. This direct listing route is a little bit different, a little bit less common, becoming a bit more common over the last couple of years. We've seen some big names do it, and Palantir is just one more to that list.

Feroldi: Yeah. And importantly with direct listing, no new shares were created in the process, instead about 250 million shares that were already created, already a part of the company, were already owned by other investors, and were just resold on the public markets. The company did not get any big boost of proceeds as we normally see from an IPO. However, now that it is public, it certainly has the option to do secondary offerings down the road to raise capital, so that's an important distinction here, no new shares were created, instead existing shares just became listed on a public exchange.

Lewis: While we're talking about shares, we should probably talk a little bit about the voting structure setup. You mentioned the, kind of, big three behind this business, Karp, Cohen and Thiel. They have a lot of power in this company, and you see that immediately when you look at the way that shares are broken down and the class structures that they have.

Feroldi: This is a company with three different share classes. There's Class A, which is the publicly traded ones, you buy that, you get one vote. There's also Class B stock, Class B gets 10 votes per share, and Class B can be converted into Class A at any time. There's also something called Class F shares, and the F basically stands for Founder, and these are shares that are held just by Karp, Cohen and Thiel. And there are some rules that they have to follow to basically maintain ownership of this, but if they do that, those Class F shares alone give them 49.999% of the voting power of the company.

Yet again we see, if you are investing in Palantir, know ahead of time, you get no say in anything. This is the founders' company and you [laughs] have to go along with what they say.

Lewis: And that's kind of become table stakes in the tech industry at this point. You know, it is very hard to buy into any recent tech IPO, any company that's really come public in the last five years or so, and not see a founder or an early employee that has become an executive wind up with a controlling stake in the business. It's just how a lot of these are structured. And for the most part, I think we're willing to give that power away because we're investing behind the founder, especially if it's a founder, we like the drive that comes with that.

But it is not without its flaws. You know, there are some companies, I can think of Snap in particular, where some people felt like the company didn't deserve that type of control based on the CEO's pedigree. I don't know that that's the case here with Palantir, this is a pretty established leadership group.

Feroldi: Yeah. I'm not going to have any problem with Peter Thiel [laughs] continuing to call the shots here. He has clearly put up a tremendous amount of his own capital to get this company off the ground. Again, all three co-founders are still with the company today. This company was founded 17 years ago, it's not brand-new. So, that's actually a really long stretch of time for all three founders to still be involved in the C-suite. If you are going to be an investor here, you should be entirely comfortable with that amount of voting power. It's just still good to know that ahead of time.

Lewis: [laughs] Brian, when we talk about different companies on the show, we throw around the idea of data and big data pretty often, it has become, kind of, a catch-all for a lot of subindustries within that. Palantir operates in that space, but I think we probably need to unpack specifically what they do and who they do it for to really understand how this business works.

Feroldi: Yeah. Well, to your point, they really got their start with a focus on the intelligence community. So, the CIA, the FBI, all very early customers of theirs. And one of the things that's worth pointing out, the company was founded in 2003 but it didn't sell to its first client until 2008. So, it was kind of building this product in the background in stealth mode for five years before they even landed their first customer. Makes sense that [laughs] the CIA and the FBI really had to really vet the software thoroughly before they signed on. But it's essentially a big data analytics platform.

Palantir points out that they are not themselves the source of the data, they don't mine for data, they don't scrape data. Instead it takes data that already exists, it brings it into one unified platform and it allows users to make decisions and to create intelligence from that data, from that unstructured data. So, that's really at the core of what this company does.

Lewis: If you're thinking in terms of value add, what they're really offering to customers is the ability to recognize patterns and start to identify what might be happening, hopefully before it's happening, that's really the value-prop is, we're going to help you connect all these dots in a way that makes action easier and makes things that -- you know, going back to the PayPal example, potential fraud, but more in Palantir's example, counterterrorism. Stop them before they happen.

Feroldi: Yeah. I mean, data is data. And data by itself is meaningless, it's the interpretation of that data that can provide insights, and in Palantir's case, for antiterrorism purposes. So, that's an important distinction here. They're not creating it, they're gathering it from multiple sources, they're bringing it together on one platform, and they're allowing users to create intelligence from that data.

Lewis: We talked about the direct listing before. And given that they didn't raise any money, Brian, I guess it's natural to ask, why did they go public?

Feroldi: That's a great question. And I thought this company, since given the nature of its business, was going to stay private for a long period of time, as you pointed out, they didn't raise capital, so they weren't in dire need of capital -- and we're going to get to their balance sheet in a little bit, and it looks pretty good prior to that. However, they started in the government space selling to governments for counterterrorism purposes. They have since shifted a little bit to say, we have this platform that is extremely useful with analyzing data, let's take that and let's convert that to the commercial sector. So, they've done a great job signing on enormous companies that also want to take big, big things of unstructured data, unify it and draw conclusions. So, they've landed a number of big clients such as Merck, Fiat Chrysler, etc.

One of the reasons for them to come public was, by becoming public, first off, it's a major media event. I'm guaranteeing that a whole bunch of people now know the name Palantir that didn't a week ago. And by becoming public and allowing investors to participate in the upside, they think it'll give them much more visibility and the ability to sell to more and more clients. You can't argue with that given how much attention direct IPOs and direct listings have gotten this year.

Lewis: No, I think that's right. And I didn't really connect those dots until I was kind of reading through the outline and started thinking about some of the thoughts you're putting down, Brian. But, you know, I think about a company, even like Pinterest, where that business, I think was kind of a sleepy business for a while and went through the IPO process, is now regularly in the news, because their shares are doing great. But that became a marketing event in and of itself. You know, like, the idea of going public and then having your shares out there, it's a great way to raise awareness for a business and it, kind of, becomes a selling tool if you're trying to get your name into the corporate space, and really just great buzz. And maybe that's the play here.

Feroldi: Yeah, exactly. I mean, both of us had heard the name Palantir before this, I just assumed they were purely in the government space, it turns out that over half their revenue now comes from the commercial space. I completely understand how coming public will bring them onto a whole bunch of executives' radars that wouldn't be there before. I think it was a great marketing move.

Lewis: One thing that I think is pretty interesting with the process of this company going public is what we've heard from their leadership team. And, you know, I mentioned before that they're probably a little bit more defense contractors than tech. And the CEO made a point to kind of distance the company from traditional Silicon Valley and traditional tech as they were making this grand entrance.

Feroldi: Yeah, if you read through the CEO's letter, they go out of their way to say that they started in Silicon Valley, but they have since moved. This company is now headquartered in Denver, Colorado, because they say that they no longer share the values that are rampant throughout Silicon Valley. For example, they say, "From the start, we have repeatedly turned down opportunities to sell, collect, or mine data." That stands in stark contrast to some of the biggest tech companies in Silicon Valley, so very clearly drawing a line in the sand and standing on one side of it.

Lewis: Yeah. And it's kind of interesting, because they are a controversial business because of how their products are used and who they tend to work with. You know, surveillance and counterterrorism are things that are important, but also things that come with a lot of very fraught elements and can very quickly get very complicated. And it would be easy to condemn a business like that, but their point here is, you have all these people that are marketing access to data, your data, and that's the business model. You know, that's what's going on with social media, that's what's going on with most of these internet properties. We think that we're on the other side of this, you might take some exception to how we're doing things and who are doing them with, but we actually think that this is in some ways a more noble way to handle the space.

Feroldi: Yeah. And we're going to make no value calls there, I completely understand why some people are going to look at this company and say, pff! big brother. No, thank you. I do not want to invest in this thing. And there's no harm with taking a pass here. But like it or not, this company [laughs] exists and they are going to do what they're going to do. I think the reason that they were founded was good. Again, keeping Americans and their allies safe, antiterrorism. However, there are definitely some ethical questions that need to be asked about using the data for certain purposes. And they say that they're finding needles in multiple, multiple haystacks. Well, the general population is that haystack and they still have to know a lot about you to find that needle. So, there are definitely some ethical dilemmas here.

Lewis: Yeah. And if you're doing any research on this business, I think one of the main products you'll probably encounter is Gotham, Foundry is another one of their big products. But Gotham was, kind of, their first one. And what you see repeatedly with Palantir is a fun naming convention with a lot of their stuff. Gotham is, kind of, a nice shot-out there. But quickly, Brian, what does that help clients do?

Feroldi: That is the platform that runs government operations in the defense and intelligence department. So, again, it is kind of the core engine that takes big data sets, it allows analysts to look at them, allows for data to be shared whenever the permissions match up, and it allows for the planning and execution of responses in the real world. So, Gotham was their first platform and their core product.

Their second product was called Foundry, which is kind of like a repository for data. It helps to bring in data to unify it, to make it easily accessible. And that's one of the things that this company points out over and over again is that, in big organizations and government organizations, data isn't necessarily connected together, there are a lot of silos within these massive organizations. And before Palantir, there wasn't really a central place where this data could all be integrated together. That's one of the things that they say they can do. And they actually call out that they have network effects in some way within organizations. So, the more data that gets put onto Palantir's platform, the easier it is for other people in that organization to access it and use it. That's an argument that I buy, it's not a true network effect in the sense that we've seen with other platforms, but I do think that does provide a competitive advantage for this company.

Lewis: Something that's, kind of, been on my mind as I've looked at them is, like, what makes them similar and what makes them different from the conventional software business that we talk about? And my read at least, and I might be wrong on this, is that their solutions require a lot more client customization than the average SaaS service. You know, if you're in, like, the CRM space or you're helping salespeople or whatever, there's a certain amount of interoperability that pretty much every organization is going to want. And I think what you're probably going to see with this is that the cost of getting customers is probably going to be a little higher, and also the level of customization that those customers need is probably going to be a little bit higher than what you typically see with enterprise software.

Feroldi: Yeah, a little bit higher is a nice way [laughs] of putting it, Dylan, I was going to say. We're going to go into the numbers in a little bit, but the onboarding costs of getting customers on this platform is staggering. I mean, it just takes so much salesmanship and marketing and effort and probably it's a multiyear period to get one client onto this platform, given the stakes. However, the flipside of that is, once they're on, holy cow! are they on. One stat that they call out is that of their top 20 customers. The average of those top 20 customers has been with Palantir for six-and-a-half years, the average. And keep in mind, while this company is 17 years old, it's only been selling products for 12, that speaks volumes about the switching costs that are inherent in this business model. However, as you point out, wow! do they have to spend heavily to get those customers in the door.

Lewis: Yeah, that's a lot of cash out the window. And it makes sense, I mean, if you're willing to make that investment and that payment, it's truly an investment if you can keep customers for that long and you really have them satisfied. One other way that they might be a little bit different than some of the other businesses that we typically talk about, is the growth rate isn't quite as high as you might expect for a company that operates in the software space and who's just making its debut now.

Feroldi: Yeah. And I think that's partially due to the nature of the business and how hard it is to land customers. And the company is very clear that it is a subscription-based model and a major part of their growth strategy is land-and-expand. So, land, get that customer in the door, and then once you're in, grow and grow and grow within your customer base. So, in 2019 their sales growth was not all that impressive given the valuation afforded to this company. I think it was in the mid-20s, that number did accelerate pretty significantly in the first half of this year, it did grow 49% through the first half of 2020, that was up to $481 million. That gives the company a run rate of about $1 billion in revenue this year. 49% is pretty good but, again, keep in mind that was a bit of an abnormality and it was a significant acceleration when compared to the prior year.

Lewis: One thing I want to go back to is that land-and-expand strategy you're talking about. And it would be easy to say, like, oh, the typical software approach wouldn't work here, because you're talking about government contracts. And I was reading this piece in prepping for the show that was in courts, talking about how early on, when they were, you know, before they had many contracts in place, they had actually given free training and software to soldiers in Afghanistan, and that they were able to build [laughs] loyalty through the folks that were on the ground, because it was nice, easy, intuitive software. And that basically forced the hand of the government to invest in the software and then create a relationship with Palantir. So, while they might not operate in the same way that Dropbox or Slack does, [laughs] they are still using some of those tactics, which is pretty wild.

Feroldi: Yeah. And they've done a great job with it, they have clearly shown a history of finding ways into these organizations, and I can't imagine how hard it is to get that company on board with this. But once they're onboard, they stick around for a long time. And a part of Palantir's model is to make its customers sign a multiyear sales contract. The average that it pushes for at the beginning is five years, so a five-year renewal period with renewals after that point. They've done a great job of keeping customers around and convincing them to spend more over time. So, that's obviously something that we love to see as SaaS investors.

Lewis: Yeah. And it's key, if you're going to spend a lot of money bringing people in, they got to stick around and that's got to be money well spent, otherwise it's going to be tough for the numbers to really work out for you. And I think perhaps more than any business that we've [laughs] talked about in a while, I would say the switching costs for this company and this company's products, Brian, are probably higher than any other business that [laughs] we've talked about.

Feroldi: Yeah, I think that that's fair. Again, super-costly upfront, once you're in, you're in, and you're probably going to be in for a long period of time. Now, the rest of the income statement actually looks pretty good too as well. So, gross margin for this company -- again, it's a subscription-based model -- has been growing, recently touching 72%. Pretty good overall. They are spending copious amounts [laughs] of money on sales and marketing, on overhead, on R&D. Actually, it was good to see that R&D expenditures in the first half of the year were pretty flat, and sales and marketing expenses were actually down when compared to the prior year, however still high in absolute terms at $200 million.

On the bottom-line, not looking too good. The net loss for the company for the first six months of the year, on a GAAP basis, was $164 million. The good news there is that was more than all stock-based compensation related. The company actually reported an adjusted net income, so on an adjusted basis, Dylan, they are producing net income, $17 million in the first half of the year. It's nice to see that they've already reached that level of scale.

Lewis: And one thing that we have to talk about when we talk financials, Brian, is what's going on with their cash coverage in the balance sheet. A decent amount of cash here, and you said it before, they didn't necessarily need to raise capital, that's why we're able to go with this direct listing route. So, a pretty decent balance sheet here, I think.

Feroldi: Yeah, $1.5 billion in cash, that compares to about $300 million in debt, that gives them plenty of liquidity and they did not need to raise capital. One thing that I found notable, and this is why it always makes sense to check both the net income and free cash flow, again, $17 million in adjusted non-GAAP net income. However, free cash flow during the first six months of the year, -$230 million. I'm not entirely sure of the huge delta between those two, it could just be the timing of customer payments and when contracts renew, but that's a pretty big difference between the two. Again, always look at both free cash flow and net income.

Lewis: Yeah. And that's going to be a staple of a business like this, a little bit of funkiness with the accounting, because they are in multiyear contracts, they are generally inking deals, and then having to actually deliver on those deals for years out. So, there's always going to be some stuff that you, kind of, need to dive into there. But I think all things considered, nothing crazy, nothing that, like, really shouts out as a red flag or anything like that, when I look at the numbers. The only thing I would say is, I was expecting revenue growth to be a little bit higher, but they operate in, kind of, a fundamentally different space than a lot of businesses we talk about.

Feroldi: And this could be a very lumpy revenue growth kind of company, or at least much more so than we've seen in the past. This company only has 125 customers, 125 despite doing almost $1 billion in revenue. As you can imagine, landing one or two more customers can really change the topline growth rate. So, you're just going to have to accept that fact, some years they're probably going to land many more than others. So, the growth rate might not be as smooth as it is for other SaaS companies.

Lewis: A quick who's who on that [laughs] list of customers, Brian. The CIA, the FBI, NSA, CDC, Marine Corps. So, a lot of the government entities that you were talking about. But to your point earlier about the commercial enterprise they're getting into, Airbus, BP, Credit Suisse, Fiat Chrysler. When you see 125 customers, do you worry at all about customer concentration?

Feroldi: Oh, of course, that's a risk here, and it was definitely something I was going to bring up in the backend. No surprise to see that customer concentration is a big risk here, the top three customers are almost 30% of revenue. That number has been coming down substantially over time. Again, they started out with just the CIA and the FBI, who at one point were probably 100% of revenue. A major part of this company's de-risking plan is to land more commercial customers over time. I think that the direct listing will certainly help to raise their profile there, as well as the fact that you can go to them and say, well, the FBI trust us, the NSA trust us, the CIA trust us, I think you can trust us too.

Lewis: Yeah, I'd say that's a pretty good rubber stamp, [laughs] if you're trying to pitch to enterprise customers. It also might make it easier and a little bit more efficient for them with their spend. You know, if they're going after enterprise customers, I think that the customer acquisition cost per customer and per contract might come down a little bit.

Feroldi: That's definitely going to drop or at least it should if this direct listing pays off for them. One other thing that I was particularly impressed with, to your point before, they said that it was a tremendous cost to them to get these new customers up-and-running. They have devoted a tremendous amount of R&D to getting the time from landing a contract to deployment down significantly. They said, in the last year, they've brought the average time that it takes a customer to get up-and-running down by a factor of five. That is an impressive move. And they even said that some customers can be up-and-running on their system in a matter of six hours. That should, if that is true and they keep duplicating that, that should go a long way to helping to speed up customer acquisition.

Lewis: I think anyone that follows these shows and knows your checklist, Brian, knows that we like to look at management and culture a little bit. We talked about the anti-Silicon Valley tone that CEO Alex Karp set as they were making their public debut. How is he generally looked at by employees?

Feroldi: Pretty good actually. The company has a couple of hundred ratings on Glassdoor.com, and it gets 3.9 stars out of 5; that's a pretty good number overall. 86% of employees do approve of the CEO, and more than three-quarters of them would recommend the company to a friend. Those are overall pretty good numbers for any company. And again, the thing that impresses me about this management team is that all three co-founders are still here. So, you have Karp; you have Cohen, who is the President; and you have Thiel, who is the Chairman of the Board. Inside ownership here is also pretty high. Peter Thiel owns more than 20% of the company. Alexander Karp, the CEO, owns 8%. And Cohen owns 3%. That right there is over 30% ownership from just the three founders, so lots of skin in the game.

Lewis: Yep. And a proven track record, you know? [laughs] If you're buying Palantir, you're investing alongside Peter Thiel and some other very successful folks as well. So, there is nothing to sneeze at in terms of the ownership and the skin in the game with this business. It is not without its risks, though. I mean, I think we've definitely hit the fact that there's a long sales cycle with this company, there are some pretty heavy customer acquisition costs, but there's some other stuff there too that we should probably hit.

Feroldi: Stock-based compensation is extremely high; they are in hiring mode right now. So, what's that going to be now that they're public, now that you can trade? I mean, typically we see a lot of companies ramp that up once they do come public. So, something to keep in mind. They're also losing money on a GAAP basis, and burning it on a free cash flow basis. I would hope that both of those things are going to reverse in the not too distant future, but something to keep in mind.

And then there's just the valuation, so this company is going to do about $1 billion in revenue. If their market cap is, say, $15 billion, that's 15X sales. Overall, when compared to a lot [laughs] of other companies that have come public, that's actually pretty reasonable. But it's still, in absolute and historic terms, a high number.

Lewis: It's reasonable, but I think it's also rich given the growth rate. I think this is a helpful thing for me where you can look at that multiple on revenue, but also understanding the revenue growth rate. There are businesses that have higher price-to-sales ratios out there that actually might be slightly more attractive to me, because they are growing at 40% or 50% year-over-year.

Feroldi: Fair enough. And they also might have higher gross margins, a higher margin potential too, so those are all fair points. One of the questions that I have is really about the company's long-term potential, because if you are selling to big customers and you already have some of the biggest on your platform, how much room is there for you to grow? In the company's documents they do say that they estimate that their total addressable market opportunity that they see is $119 billion, take that for whatever you want to. But again, if that number is anywhere close to true, they believe that they have a lot of growth runway ahead of them. It's just a matter of how much actual runway could there be when they already have landed so many of their big customers.

Lewis: Yeah. I think expanding into enterprise, for them, is huge in terms of really unlocking more market value. And it'll be interesting to see what they wind up doing with that market, and what the revenue mix looks like three or five years from now. Because if they want to really meaningfully grow, there are a lot of applications where, I think, you know, fraud detection, making sense of all these disparate data systems really makes sense for multinational companies and businesses that have pretty large operations. It's just really a matter of how much can they cater their software and their products to that market?

Feroldi: Yeah, I think that that's right. So, Dylan, we've gone through. I think that there's a lot of positives here, there's some negatives, but what's your bottom-line, is this going on your watchlist?

Lewis: I think, certainly one of the most interesting stocks of 2020. I have wanted to see the books on this business for about three years. [laughs] And so, I'm really excited that we have the prospectus in front of us. This is going to be a lame answer, but I kind of want to wait and see a little bit with this business. I think more than almost any company that we talk about, there is a reputation risk that comes with Palantir, they've dealt with protests outside their headquarters. They are a hot-button issue for a variety of reasons. Brian, you mentioned big brother before. There are some concerns that people have, you know, when it comes to a private business being involved in surveillance. And I don't really know what side of that I'm on, I'm still kind of working through a lot of that, but I need to read more about them and really, really have a good grip on who they are and where they're going, and I need to see the next 6 to 12 months of them as a publicly traded company before I'm hopping in.

Feroldi: Well, count me in the exact same boat that you are. I think that there's a lot of reasons to be bullish on the business, the management team, the margins, especially the competitive advantage here. I haven't personally gone through all the potential ethical things here, and like it or not, this company is going to be attached to the hip of politics, so you're going to have to deal with that part of it too. But overall, I think if you're looking at it purely as an investment, there are reasons to be excited and to put this company on your watchlist.

Lewis: Yeah, I don't know if we actually hit it before, but I think it's about 70% gross margins, pretty attractive growth rate. I think, for me, the morality of what they do aside, there are more interesting SaaS players that are growing at higher rates and don't come with some of the ethical issues that Palantir raises. And so, I kind of say, like, this is super-interesting, it's hard for my brain right now. And if I'm going to be buying stuff, I like to focus on things that have financials I can wrap my head around a little bit more and are just easier for me, I don't have to do as much mental gymnastics.

Feroldi: Fair enough. There are no called strikes in investing, right? You can look at as many as you want, you don't have to swing every time.

Lewis: Yeah, that's exactly right. Is that Buffett or is that Munger?

Feroldi: That sounds like Buffett.

Lewis: Yeah, it does. All the good ones do. [laughs] But Brian, you have some of your own quips, and I'm always happy to have you on to share them. So, thank you for joining me on today's show.

Feroldi: Anytime, Dylan.

Lewis: [laughs] Listeners, that's going to do it for this episode of Industry Focus. If you have any questions or you want to reach out and say, "Hey!" shoot us an email over at IndustryFocus@Fool.com, or you can tweet us @MFIndustryFocus. If you want more of our stuff, subscribe on iTunes or wherever you get your podcasts.

As always, people on the program may own companies discussed on the show, The Motley Fool may have formal recommendations for or against stocks mentioned, so don't buy or sell anything based solely on what you hear.

Thanks to Tim Sparks for all his work behind the glass today, and thank you for listening. Until next time, Fool on!