Palantir Could Reach a Value of $22 Billion in Its Market Debut

By Mariliana Fotopoulou Friday, September 25, 2020

Palantir Technologies Inc. is looking to secure an elevated valuation in its conversion to become a public company despite having an exceptionally aggressive management structure, as investors are showing high interest in the controversial company.

The data analytics company decided to avoid the traditional initial public offering and went for a direct listing, meaning that its shares will become available on a public exchange and let the market determine the stock price.

Palantir Valued at $22 Billion

The company’s bankers have informed investors that price per share could start at around $10, the Wall Street Journal reports. In that case, the Palantir market cap could hit around $22 billion on a fully diluted basis.

During the last year, Palantir’s stock has been climbing in the private markets. In August, the volume-weighted average price was $7.31, and in September, it was $9.17.

Those prices will play a part in determining Palantir’s reference price that will serve as a guidepost to where its stock could debut in direct listing. The exchange will announce the stock’s opening price after checking recent performances in private markets and consulting with Palantir’s financial advisers.

Palantir submitted a filing on Tuesday, providing guidance for the rest of 2020. Companies who go public through traditional initial public offerings (IPOs) are not allowed to do this, as opposed to those who opt for direct listings. Palantir estimated revenue growth of 42% to about $1.1 billion for fiscal 2020.

Like most other valuable tech companies before going public, Palantir also hasn’t generated profit yet. Last year, the company reported a $579.6 million net loss - almost the same as in 2018. The first half of this year was slightly better, reporting a $164 million loss compared with a $274 million loss in the same period year-ago.

Some investors believe Palantir’s stock will keep rising in time, despite the company’s aggressive voting structure.

The company plans to take measures to restrict the supply of stock on the market by only letting existing investors sell 20% of their shares until early 2021, an approach that aims to boost the stock price.

Palantir’s shares could still start trading close to where it secured funding five years ago. The company was founded in 2003, and since then, it has secured over $3 billion and became one of the highest-valued startup companies after its 2015 funding round put its valuation at $20 billion.

It is not certain that Palantir’s stock will debut at the anticipated level or that it will keep trading at that level for a long time.

The expected lofty market valuation for Palantir is an indicator of the unlikely soar in the IPO market as companies are struggling to offer their shares and gobble them up during this challenging period for global economies. The IPO market is moving at a stunning pace, largely thanks to soaring stock prices.

Controversial Management

The high interest in Palantir’s stock is even more surprising since it’s a company with one of the most aggressive management structures ever seen. Palantir has three co-founders — billionaire investor Peter Thiel, CEO Alex Karp, and President Stephen Cohen. Their sharers are structured in a way that they can become more powerful as the founders sell off their stakes, as per securities filings.

Palantir is structured in such a way that it could allow Cohen, for instance, to still be in control of the company by holding just 0.5% of the shares. The company also has an exceptionally high number of deals with its executives, known as the “related party transactions.”

It lent $25.9 million in 2016 to President Cohen, who paid off most of that debt in August using a part of his shares. Loans to top executives are not allowed for publicly traded companies.

The voting structure in the company is part of a new drive by start-up companies in recent years to stay in control after they make a transition to public ownership and in many cases, they provide themselves with an option to generate windfall gains from selling the majority of their stakes.

Anita Dorett, associate program director at the Interfaith Center on Corporate Responsibility, said Palantir’s structure “takes it to another level with concentrating power with the founders.”

The nonprofit organization has condemned some of Palantir’s work with government agencies associated with deportations. US intelligence agencies also use Palantir’s software solutions.

Summary

Palantir Technologies could hit a market cap of $22 billion in its public trading debut, despite having one of the most aggressive governance structures ever seen, as investors are hungry for new shares.

About the Author


Mariliana Fotopoulou

Mariliana has an MSC in consumer analytics and business strategy. She has a special interest in fast-moving industries and big data.

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