Silicon Valley – As the global economy tries to find the light at the end of the Covid-19 tunnel, a sign that things may be returning to some semblance of normalcy has revealed itself as the number of companies filing for an IPO has increased over the last few weeks. Insurance upstart Lemonade (NYSE: LMND), an insurance company that deals in rental and homeowners insurance, debuted at a $29 share price which valued the company at around $1.6 billion. The shares were quickly snatched up and the share price rose as high as $96 before coming back down to earth recently where it has settled in the high 70s. The huge increase in share price shows the hunger that investors have when a new IPO hits the markets, especially in one of the hot new sectors like Fintech or Saas. On July 6th one of the most valuable private companies in Silicon Valley, Palantir Technologies, announced it was going public with early valuations of the company coming in at over $25 billion.
At its core Palantir is a data analytics company that works closely with both private firms and Government agencies. In fact, an estimated half of its revenue comes from Government contracts, specifically law enforcement agencies, intelligence agencies like the CIA, and ICE. It was founded in 2003 by Peter Thiel, Nathan Gettings, Stephen Cohen, and current CEO, Alex Karp. Palantir has been raising capital lately before they announced that they were filing to go public, and has been able to raise about $3 billion in venture capital investments from huge asset funds like the Founders Fund, Fidelity, Tiger Global Management, and In-Q-Tel, better known as the investment branch of the CIA. If you are starting to get the feeling that the success of Palantir is highly tied in to the Government, you’re on the right track.
But it’s not all roses for Palantir, as a quick look into its past work has raised some ethical concerns for investors and analysts alike. Most notably, Palantir was heavily criticized for its role in identifying and tracking immigrants on behalf of ICE, the Immigrations and Customs Enforcement Agency. Using Palantir’s Integrated Case Management System which stores data and other information that is gathered by ICE surveillance networks, ICE is able to carry out their deportation operations on immigrants who they are tracking in America. In conjunction with this, Palantir has also created a project called FALCON which has an associated FALCON tipline, that is used to consolidate their data with tips to build more evidence behind future deportation operations.
Recently, Palantir Technologies was in the news again as they were successful in securing no-bid contracts from the White House Coronavirus Task Force for data-tracking in regards to the Covid-19 pandemic. Much of the data that was being compiled by Palantir has not been disclosed to the public, which caused some congress members to speak out against the Government’s relationship with Palantir. Further outrage arose when more dots were connected and it was revealed that investor Peter Thiel donated $1.25 million to Donald Trump’s presidential campaign in 2016. If there are investors out there who have ethics and company transparency in mind when selecting which companies to invest in, Palantir’s checkered past may indeed scare some people off.
So what of Palantir as a public company? How well can it really do? It is common knowledge now that the tech industry is an investor’s dream if they can get in on the ground floor with any of these IPOs. If Palantir does debut at its current market valuation, it would be the single biggest tech IPO to hit the market since Uber (NYSE:UBER) debuted last year. Palantir reported $700 million in revenue in 2019, a number that is estimated to grow up to $1 billion in 2020 and $1.5 billion in 2021. Profitability does not seem to be an issue for Palantir, though it has taken 17 years or so to reach a revenue stream of $1 billion when other tech giants like Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) reached those levels in nearly a third of the time.
One issue that may arise is the continuity of Governments if the Democratic Party emerges victorious in November. If Donald Trump is no longer President, investors may worry about how consistently Palantir would receive those lucrative Government contracts, especially ones they have to bid on. Sure, having existing knowledge and having consistency has its merits when talking about contracts and agreements, but how willing would the Democrats be to hire a company that supported Trump in 2016? If any part of their Government contracts are mitigated, Palantir could see a significant drop in expected revenues moving forward.
As of now, no details have been provided about how long the SEC will take to review Palantir’s filings and no IPO date on the near horizon. Investors should be excited about Palantir whenever it does go public, as a $30 billion tech company that is already expecting $1 billion in revenue this year alone does not pop up very often. For a quick comparison on an IPO that debuted earlier this year, albeit in different industries, Nikola Motors Corporation (NASDAQ:NKLA) had an IPO valuation of $12 billion, with zero revenues thus far. Just over a month since Nikola’s stock debuted, and the company with zero trucks on the road has a market valuation of $20 billion, even briefly touching upwards of $34 billion, before the stock price came back down. While in the electric vehicle sector, investors have been desperately trying to get in with the next Tesla (NASDAQ:TSLA), the same can be said in the tech sector. Can Palantir match the success of Google or Facebook in the long run? Right off the bat, their main business has a much more direct route to profitability than Uber, but the success of Palantir very much hinges on the consistency of obtaining Government contracts. Investors may ultimately decide to take a wait and see approach when Palantir finally does go public.