Company / Analytics

Palantir Technologies direct listing this week

U.S. Data analytics firm Palantir Technologies is scheduled to go public on Wednesday through a direct listing on the New York Stock Exchange. For years, Palantir was known as the most secretive unicorn of Silicon Valley startups. Its decision to go public has turned the company into a fountain of information. Here is what you need to know as the company lists on the NYSE this week.

Palantir Technologies background

• Palantir was founded in 2003 by billionaire PayPal co-founder and Facebook investor Peter Thiel.
• Palantir got its start with the CIA: The core reason Palantir has been both secretive and controversial since its founding in 2003 is that it began with money from the Central Intelligence Agency to develop data-crunching software for the government. Palantir received original funding from In-Q-Tel, the CIA-funded nonprofit venture-capital arm, to develop its first major product, Gotham, which launched in 2008 to help government entities with surveillance and warfare planning, among other uses. Due to these Palantir has for years been known as a secretive big-data firm.
• The company is run by billionaire co-founder and CEO Alex Karp. Both Thiel and Karp have run the Palantir since shortly after its inception. Before Palantir, Karp founded the money management firm Caedmon Group.

Direct listing and share price

• Palantir publicly filed for a direct listing on August 25.
• Palantir will price its IPO on September 29 but will begin trading on September 30 on the New York Stock Exchange under the ticker symbol PLTR.
• The shares are expected to debut at about $10 a share, giving the company valuation or almost $22 billion. The company forecasts over $1 billion in revenue in 2020, up from $743 million in 2019. But there is no guarantee that will be the starting price for Palantir.
• Palantir is notable for its extensive work with the U.S. government, creating software to facilitate domestic surveillance. While this work has been controversial, Palantir has embraced this role and in its S-1, it lists its desire to become the “default operating system for data across the U.S. government.” In its original filing, Palantir Chief Executive Alexander Karp loudly and publicly broke up with Silicon Valley in a letter at the very beginning of the document, a unique approach that sought to defend Palantir’s secretive work building surveillance and warfare capabilities for the U.S. government and allies.
• The company then revised its public filing six times; along with early versions submitted privately to the Securities and Exchange Commission, Palantir is now on the 11th version of its offering filing. It even revised its filing twice in one day and reversed changes that a TechCrunch reporter detailed on its voting structure. Palantir made that move after warning investors in its filings about getting information from the media.

What business is Palantir in?

• Palantir provides customized software to clients analyzing large swaths of data for purposes ranging from finding suspected criminals to improving companies’ manufacturing capabilities.
• According to its website, Palantir has two main services that analyze data: Palantir Gotham and Palantir Foundry. Palantir offers a variety of what it calls solutions for different types of applications, whether that’s for automotive companies, the defence sector, financial compliance, insurance, intelligence operations, law enforcement, and others.
• While the majority of Palantir customers may be commercial businesses, that doesn’t mean the majority of its revenue comes from those contracts. “Our top three customers together accounted for 33% and 28% of our revenue for the years ended December 31, 2018, and 2019, respectively, and 31% and 29% of our revenue for the six months ended June 30, 2019, and 2020, respectively,” the company disclosed. “Our top three customers by revenue, for the year ended December 31, 2019, have been with us for an average of 8 years as of December 31, 2019.”
• Palantir said it had contracts with government entities for an additional $1.2 billion in business on its books, and an additional $2.6 billion in “indefinite-delivery, indefinite-quantity” contracts that are not counted because the funding has not yet been determined.

Controversies

• Much of Palantir’s business activities or operations, for example, how it uses the troves of data is opaque to all but the most dedicated followers.
• Palantir says its software’s and work have helped companies and government agencies in everything from the conviction of Ponzi schemer Bernie Madoff to disaster recovery to combating cyberattacks and fighting child exploitation. There’s even an apocryphal story that the firm’s technology was used to help locate Osama bin Laden.
• The company has courted significant controversy due to its work with government agencies, including Immigration and Customs Enforcement (ICE), and due to billionaire Thiel’s support for President Donald Trump. Karp has been vocal about his belief in the need for Silicon Valley companies to work with the U.S. government and law enforcement agencies.
• Questions also linger on when Palantir is likely to turn a profit. Like many tech unicorns that have recently gone public, Palantir has yet to make any money, losing $580 million in 2018 and $579 million in 2019. In the first six months of this year, Palantir recorded a loss of $164.7 million on revenue of $481.2 million, after recording a loss of $280.5 million on sales of $322.7 million in the same period of 2019.
• According to a Bloomberg Report, Palantir has also in the past lost several partnerships with high-flying corporations including Hershey’s, Coca-Cola, Home Depot, and American Express due to the tech firm’s high costs.

Direct listing

• Palantir decided to go with a direct listing instead of an IPO, following other mature startups such as Slack Technologies Inc, Spotify Inc, and Asana Inc., which is expected to begin trading this week. With a direct listing, the company does not create nor sell any new shares. For Palantir, though, years of venture-capital investments have created more than enough shares to launch public trading: roughly 1.64 billion, though that grows to 2.17 billion in a fully diluted formula that includes vesting options.
• Not all those shares will trade openly at the launch, though. Most of the shares are locked up through the end of the year, a common practice for IPOs but unusual for a direct listing. Palantir said in a news release Friday that it expects a total of 461.2 million shares will be permitted to be sold on the first day of trading, though there are no guarantees that all of those shares will hit the market.
• The rest of the Palantir shares will largely become available to sell on the third trading day after Palantir publicly announces its 2020 earnings, which would be expected early next year. In the meantime, strong demand for the limited number of shares could drive prices higher, as they have for recent hot software IPOs like Snowflake Inc. and Unity Software Inc.
• Direct listings typically seek a “reference price,” largely based on previous sales of the company’s stock on the private market.