Secretive data analytics start-up Palantir, co-founded by Trump-supporter Peter Thiel, who also co-founded PayPal and was Facebook’s first investor, is to launch a $20 billion direct listing this Wednesday. The market debut will once again test investor appetite for loss making but high growth U.S. technology companies when its shares go public later this week on the New York Stock Exchange through a direct listing.
Palantir’s choice of a direct listing, which sees the market decide the price of shares rather than the company initially setting them based on investor demand as is the case in a traditional IPO, is also a growing trend for tech companies. Spotify and professional chat and collaboration app Slack are other recent examples of tech companies that opted for direct listings, and it appears to be a trend that we can expect to see more examples of in future.
Its also another tech company float that will shun standard corporate governance norms for public companies by ensuring continued founder-control through the award of shares with increased voting power to Thiel, Palantir’s chief executive Alex Karp and the company’s president Stephen Cohen. Between them, the three will hold onto 49.99% of voting rights, even if they choose to significantly reduce their ownership stakes.
Early investors in Palantir, which include UK oil major BP and business information company Relx, also stand to realise substantial profits on investments made several years ago through their internal VC funds.
Palantir has established a level of notoriety in Silicon Valley by going against the liberal values grain and working with both the US military and intelligence services. The company has contracts with the CIA, Pentagon and immigration authorities. Although, it’s not actually a Silicon Valley start-up, based in Colorado.
It’s also debatable whether the term ‘start-up’ really applies to Palantir, which is already 17 years old, having been founded in 2003. It was created with a mission to create software that would help the U.S. government and intelligence services fight terrorism. Co-founder Thiel, who made his first fortune as co-founder of payments app PayPal, is one of the few Silicon Valley bigwigs to have openly declared his support of Donald Trump as president of the USA. He has however more recently distanced himself from Trump and political statements more generally.
CEO Mr Karp embraces Palantir’s status as an outsider in the USA’s generally open Democrat-supporting tech sector, admitting that his company’s relationship with the country’s security complex makes it ‘unpopular’. He himself has a less than traditional background for a tech sector CEO, with a liberal arts undergraduate degree and doctorate in philosophy. He once described Silicon Valley as “devoid of any of the cultural norms the rest of us tend to share”.
Palantir’s software allows customers to search for insight and intelligence hidden in large data pools. Its business model differs from most SaaS companies because projects are highly customised to the needs of individual customers. This means the company relies on hiring more specialist engineers to scale, which leads to much thinner profit margins than typical of high growth tech companies.
However, growth rates are strong, with revenues growing to $743 million last year from £595 million in 2018. More revenue didn’t lead to a profit though, with after tax losses in both 2018 and 2019 standing at around $580 million. $450 million was spent on sales and marketing in 2019.
Palantir also has a UK subsidiary which accounts for around 20% of group revenue. The company has worked with the NHS over the course of the Covid-19 pandemic on a pro-bono basis.
Palantir’s staff will also enjoy a windfall from the company going public. Its prospectus detailed stock-based bonuses worth around $845 million it expects to vest over the fourth quarter of this year.