Insight Bite: Mysterious Palantir Makes Market Debut with Direct Listing

Seventeen years after receiving seed money from the CIA, mysterious data mining firm Palantir made its stock market debut in late September with a rare direct listing.

Palantir, named after the all-seeing stones from Lord of the Rings, offers digital omniscience through data – granting its US government clients magical tools that collate vast amounts of information, analyse it, and draw conclusions.

This firm’s software suite has been used to help keep tabs on immigrants, predict the locations of explosive devices, and even track and take out terrorists – landing Palantir in deep controversy, and making the firm a misfit in the progressive Silicon Valley start-up scene. As such, CEO Alex Karp shunned the valley in August, and moved the business to new headquarters in Denver.

Palantir’s choice of listing strategy reflects the firm’s distinctive identity. The firm opted for a rare direct listing process in which existing shares are sold, instead of newly issued shares. This method, also employed by Asana (and notably Spotify and Slack last year) which started trading on the same day, avoids paying underwriters or diluting share value, but doesn’t raise capital in the traditional sense.

In a lockup provision that Palantir pioneered, roughly 30% of the company’s shares were made available for trading on September 20th, and since the listing, co-founders Karp and Peter Thiel have unloaded over $400 million. This followed software glitches that initially blocked the IPO, with Palantir employees and alumni complaining they couldn’t transact on Morgan Stanley’s ShareWorks platform.

Adding to the controversy, questions have been raised over the strength of the business model: Palantir has not turned a profit since it was founded in 2003, and over the last four years has been aiming to reverse its fortunes by moving into the corporate world – drawing revenue from businesses like JPMorgan Chase and Airbus as a software provider to large enterprises.

Yet by joining the parade of software IPOs this quarter, Palantir has been able to capitalise on surging demand. The stock gained 31% on its first trading day, and is now trading at a high valuation of around 14x projected 2020 revenues.

Matt Stamp, Head of Software at Acuity Advisors commented,

“The public markets continue to be a clear barometer of investors’ appetite for the global software sector: Snowflake and now Palantir, in addition to many others, have successfully listed despite global economic tailwinds caused by the pandemic. Driven by key digital transformation thematics such as data analytics (and the impact of AI & ML) and the digitisation of traditional sectors (e.g. public sectors and defence), Palantir has finally been able to execute their much promised public market debut.”

Matt Stamp, Partner

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