Palantir Technologies Inc. is expected to fetch a lofty valuation in its transition to a public company despite an unusually aggressive governance structure, in the latest sign of investors’ voracious appetite for new shares.
The data-mining-software specialist is eschewing the traditional IPO route and going public through a direct listing, in which a company floats its existing shares on a public exchange and lets the market determine the price. Ahead of a debut planned for September 30, Palantir’s bankers have told investors the shares could start trading around $10 apiece, according to people familiar with the matter. That equates to a market valuation of nearly $22 billion on a fully diluted basis.
In the private markets over the past year, Palantir’s stock has trended higher. The volume-weighted average price in August was $7.31 and in September, $9.17.
Those average prices are likely to help determine Palantir’s reference price, the guidepost to where the stock could open in a direct listing. The stock exchange publishes the price after looking at recent private-market transactions and consulting with the company’s financial advisers.
There is no guarantee Palantir shares will start trading at the expected level, and even if they do, that they’ll stay that high for long.
Data analytics company Palantir—the firm co-founded by venture capitalist Peter Thiel most notorious for its work with the Pentagon, CIA, Department of Homeland Security, and the nation’s police forces—has filed its prospectus to go public, though it’s opting for a direct listing instead of an initial public offering.
(Disclosure: Peter Thiel secretly funded a lawsuit that bankrupted Gizmodo’s former parent company, Gawker Media, back in 2016.)
In a regulatory filing with the Securities and Exchange Commission, Palantir for the first time publicly acknowledged that it does not make and has never made a profit since it was founded in 2003. In 2019, Palantir lost $590 million, roughly equivalent to its losses in 2018. However, revenue grew from around $595 million in 2018 to $742 million in 2019. The company lost around $164.7 million on $481.2 million in revenue in the first half of 2020. It’s still heavily reliant on its government contracts, which comprised around 53 percent of its revenue in 2019.
Reuters somewhat euphemistically noted that this will be another test case in investor tolerance for “loss-making startups,” a category that includes firms like Uber or WeWork that can’t plausibly still be considered startups but keep hemorrhaging cash without any end in sight:
The company, which was founded in 2003 by a group including Donald Trump backer Peter Thiel, unveiled losses that are set to test the appetite of capital market investors who have in recent years shown an increasing wariness of backing loss-making startups, most notably WeWork, which botched its IPO last year.
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Palantir has made headway signing contracts outside the government sector, however, despite the unflattering revenue picture.
An initial public offering raises fresh capital for a company. A direct listing is different and allows shareholders to simply sell off stock directly on a stock exchange without the involvement of intermediaries. Other tech firms to go this route in recent years include Slack and Spotify).
Palantir’s other major product is Foundry, a data management and analytics software for businesses.
In a letter accompanying the filing, Karp acknowledged that Palantir’s work with the government raises significant ethical concerns, though he said decisions on morality shouldn’t be delegated to companies like his. He also claimed that Palantir’s focus on government contracting is more ethical, actually, than other companies whose entire business model is based around collecting and selling user data (such as Facebook or Google).
“The construction of software platforms that enable more effective surveillance by the state of its adversaries or that assist soldiers in executing attacks raises countless issues, involving the points of tension and tradeoffs between our collective security and individual privacy, the power of machines, and the types of lives we both want to and should lead,” Karp wrote. “The ethical challenges that arise are constant and unrelenting.”
“We embrace the complexity that comes from working in areas where the stakes are often very high and the choices may be imperfect,” he added. “The more fundamental issue is where authority to resolve such questions—to decide how technology may be used and by whom—should reside… The engineering elite of Silicon Valley may know more than most about building software. But they do not know more about how society should be organized or what justice requires.”
Regarding other tech firms, Karp wrote, “Our company was founded in Silicon Valley. But we seem to share fewer and fewer of the technology sector’s values and commitments.”
“From the start, we have repeatedly turned down opportunities to sell, collect, or mine data,” the CEO continued. “Other technology companies, including some of the largest in the world, have built their entire businesses on doing just that… We have chosen sides, and we know that our partners value our commitment. We stand by them when it is convenient, and when it is not.”
Per the Los Angeles Times, Palantir’s S-1 filing included some slightly unusual risk assessments. Instead of merely warning that the company could face negative coverage, it cautioned that critics in the media might just smear them: If the media “presents, or relies on, inaccurate, misleading, incomplete, or otherwise damaging information regarding Palantir, such coverage could damage our reputation in the industry and with current and potential customers.”
It also warned not just that its activities will outrage privacy activists, but that if Palantir is “perceived” as ceding ground to those activists, its government customers might lose confidence in its products.
“Being perceived as yielding to activism targeted at certain customers could damage our relationships with certain customers, including governments and government agencies with which we do business, whose views may or may not be aligned with those of pol