Palantir Courts Controversy With Listing Plans

Palantir Courts Controversy With Listing Plans

over 3 years ago2 mins

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Shadowy data analytics firm Palantir has unveiled fresh details of its plan to list shares publicly later this month – but whether investors’ faltering love for tech stocks will be strong enough to stomach several controversial characteristics remains to be seen 🧛‍♂️

What does this mean?

Like many 17-year-olds, Palantir’s a secretive sort; only this teenager works closely with various governments and their intelligence services. Yet while startups generally have to learn to share more when they become grownups listed on the stock market, the software company-cum-consultancy’s recent filing to do so raises as many questions as it answers.

Unlike Airbnb, Palantir’s going for an unconventional Slack-style “direct listing”, allowing employees and early investors to sell existing shares instead of creating new ones. But there’s a catch: in a bid to avoid prices falling, around 80% of these insider’s holdings will be subject to a “lockup” period during which they, er, can’t be sold 🤨

And in another twist, Palantir’s three co-founders – including the first big investor in Facebook – will indefinitely retain effective control of the company through a special class of shares even if they sell all their other stakes. That’s an even more extreme ownership structure than at Lyft and Snap – both of which are now worth less than when they listed.

Palantir's public shares are unlikely to match its last private sale price (Source: TechCrunch)
Palantir's public shares are unlikely to match its last private sale price (Source: TechCrunch)

Why should I care?

Corporate governance isn’t the only issue that could put investors off Palantir’s newly public stock: the company has never turned a profit and lost $580 million last year. That’s partly due to the high cost of customizing its projects to customers’ needs – a process Palantir’s now trying to automate to attract more corporate clients.

The firm has reportedly struggled to gain ground here in the past, instead relying on public-sector partners for half its revenue. In fact, 28% of Palantir’s 2019 revenue last year came from just three of its 125 clients – and much of its 50% revenue growth in the first half of 2020 is attributable to new US army contracts. The lower marketing costs involved in repeat business may help bump up “profitability”, but they’re unlikely to prove sustainable.

Counting stock-based compensation costs reduces even Palantir’s preferred profit margin to 10%
Counting stock-based compensation costs reduces even Palantir’s preferred profit margin to 10%

If Palantir succeeds in becoming central to customers’ data operations, it's likely to be lucrative – but close links to the current US administration mean November’s elections could dent those hopes. Interested parties can learn more at the company’s September 9th online investor day – but less controversial software listings are also available… 😉

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