Palantir IPO Is A Multibillion-Dollar Deal, Wrapped In An Enigma
After its creation 17 years ago with several billion dollars in venture capital investment, the initial public offering of Palantir Technologies is finally coming to the fore.
Now, the Palantir IPO could be the largest since Uber (UBER) — but it comes with controversy.
How much controversy? Well, an early investor in the company was the Central Intelligence Agency. Palantir's technology reportedly helped locate Osama bin Laden, while zeroing in on terrorists in Afghanistan and Iraq. The company acknowledges that its technology is used to kill people.
Further, its use by the Immigration and Customs Enforcement agency helps locate illegal immigrants. But critics say its use by ICE divides families and violates civil rights. Government and law enforcement agencies, as well as the military, are customers.
Conversely, Palantir also is helping the Department of Health and Human Services understand how coronavirus is spreading. It also has a number of corporate clients, including jet maker Airbus (EADSY), drug firm Merck (MRK) and oil giant BP (BP).
"They have built a pot of gold data and there is a strong appetite for secular growth stories in tech," Daniel Ives, tech-sector analyst with Wedbush Securities, told Investor's Business Daily. "But the technology question for Palantir and its list of government customers with various use cases will be a focal point for some investors in this backdrop."
Palantir IPO Faces Criticism, Praise
Palo Alto, Calif.-based Palantir announced its intention for a public offering last week. The company develops software that can analyze massive amounts of data.
Its use includes combing through cellphone records, financial documents, airline reservation systems and social media files. This, along with other disparate data sources, can build extremely detailed profiles on individuals and organizations.
"Palantir is one of the most innovative technology players over the last decade and their customer base speaks for itself," Ives said.
The company was co-founded by billionaire Peter Thiel, a co-founder of PayPal (PYPL) who initially got rich with an early investment in Facebook. He is also one of the most vocal supporters in Silicon Valley of President Donald Trump. Another founder is Alex Karp, the company's chief executive.
Palantir, which keeps a low profile, gets both criticism and praise for the powerful nature of its data analytics software. Critics allege Palantir's profiling tools sometimes operate under extreme secrecy with little oversight.
And the Palantir IPO comes at a time when a growing number of tech giants, such as Facebook (FB), Amazon (AMZN) and Google-owner Alphabet (GOOGL) face a backlash from employees and outside forces when their technology is used for questionable objectives. This includes the use of facial recognition technology.
Employees Displeased With Contracts
CEO Karp, in an interview with media company Axios in May, acknowledged the controversy surrounding the company. For example, he said some company employees were unhappy with Palantir signing a contract with ICE.
"I've had some of my favorite employees leave," he said in the interview. "I've asked myself if I were younger, at college, would I be protesting me? And you know, it depends?"
In that same interview, Karp acknowledged that Palantir's technology "is used on occasion to kill people."
He added, "If you're looking for a terrorist in the world now you're probably using our government product and you're probably doing the operation that actually takes out the person in another product we built."
Palantir declined to comment for this article.
Palantir IPO Filing Confidential
The company's registration statement with the Securities and Exchange Commission was a confidential filing, which the SEC began allowing several years ago. Confidential IPO filings permit companies to keep a detailed analysis of business operations from public view.
It can do that right up to the point where they pitch their IPO plans to bankers and institutional investors. It's a tactic that was used in IPO filings by Uber, Slack Technologies (WORK), and Spotify Technology (SPOT).
Now, it appears the company's value will come in around $20 billion.
"We're definitely looking at a multibillion-dollar IPO but it's not possible to say how big it might be for now," said Avery Spear, a data analyst at Renaissance Capital, which manages two IPO-based exchange traded funds.
It's also unclear how soon a Palantir IPO might actually launch. It could be in a few weeks, or stretch out much longer than that. But one thing's for sure, said Spear. "We're right in the middle of a red-hot IPO market."
Showing Double-Digit Revenue Growth
According to a report from Bloomberg, Palantir's revenue jumped 24% in 2019 to $739 million. It expects revenue to surge another 35% this year to $1 billion, an estimate that might be conservative. Bloomberg says the vast majority of Palantir's contracts are long-term deals, with the company expecting to break even this year. At the end of last year, it reportedly had $1 billion in cash.
In addition, Palantir has a backlog of contracts for multiyear deals worth $2.2 billion as of Dec. 31.
The company has raised more than $3 billion in venture capital funding from a variety of places. This includes BlackRock (BLK), Tiger Global Management, Fidelity, Morgan Stanley and Hercules Capital.
In June, Reuters reported that Japanese insurance holding company Sompo Holdings is investing $500 million in Palantir.
"If they do go down the IPO path," said Wedbush's Ives, "it would be a seminal moment in technology, very similar to the likes of Uber and Lyft (LYFT) that were private for many years then went public."
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