Palantir, the data analytics company whose ties to the U.S. government and security apparatus make it something of a Silicon Valley black sheep, yesterday made a disappointing stock market debut through a direct listing. The Palantir share price closed below its opening level of $10, finishing the day at $9.73.
Palantir opted for a direct listing rather than an IPO, which allows the company to set the price at which it sells it stock, on the condition that there is enough investor demand at that price. A direct listing allows the market to decide the price at which the equity is sold into the public market.
Direct listings carry a level of risk. If they come off and demand surges over the first day, the listing company can make more money than they would have done through an IPO, while saving themselves the effort and cost of roadshows and other requirements. But if demand proves disappointing, so can the return with no option to back out.
Palantir’s direct listing has to count as something of a disappointment. The company had hoped to achieve a valuation of $20 billion through the direct listing but ended up at $15.8 billion. That’s $4 billion less than the private valuation it reached 5 years ago.
The day started promising for Palantir, with its share price initially gaining 10% on its $10 opening price, before sliding to $9.73 by the end of the day.
Yesterday’s other direct listing on the New York Stock Exchange went better for the company involved. Asana, which is led by Facebook co-founder Dustin Moskovitz and produces task management business software used by clients that include Google and Nasa, closed the day with a share price of $29.96, having opened at $27. That valued the company at $4.6 billion compared to $1.5 billion at its most recent private fundraising.
Tech listings are proving popular this autumn, with Palantir and Asana’s following on from cloud computing company Snowflake’s $3.4 billion IPO earlier in the month.
Palantir is reorganising itself as fully software-based product company from a hybrid model between software and consultancy and investors yesterday looked like they are not fully convinced on how well that will be managed. Its final valuation fell well below that of other recently listed software companies and is a multiple of just 15 times this year’s projected revenue. The company has a projected growth rate of 40%, which would perhaps have been expected to encourage more optimism. Some analysts have, however, expressed doubts as to whether that is realistic.
Palantir had, says chief operating officer Shyam Sankar, originally intended to hold off a public listing until late next year. By that time the feeling was the company would have had sufficient time to demonstrate to markets the success of its shift to a purely software-based business model. However, a surge in new business brought about by the pandemic saw it decide to accelerate plans. The company’s management may now be questioning that decision to some extent.
However, with long customer contracts and a growing customer base, the lower price Palantir’s shares will open at today could be seen as a good opportunity by investors and push the company’s valuation higher again. The company has only allowed a portion of its class A common stock to trade now, with the rest locked up for months. So the damage of yesterday’s muted debut will be limited if the share price performs well over the next several months.
With 2 direct listings and 11 IPOs on Wall Street this week, it is one of the year’s busiest. Despite the Covid-19 pandemic, U.S. stock markets have boomed, encouraging companies to move now on listing plans. Capital raised through IPOs over the course of 2020 has already surpassed every year since 2014, when Alibaba set a record for the largest US listing, says stock market data company. Refinitiv.
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