'Transparency is a Great Thing': Secretive Big Data Firm Palantir Goes Public

Tami Abdollah

Tami Abdollah was dot.LA's senior technology reporter. She was previously a national security and cybersecurity reporter for The Associated Press in Washington, D.C. She's been a reporter for the AP in Los Angeles, the Los Angeles Times and for L.A.'s NPR affiliate KPCC. Abdollah spent nearly a year in Iraq as a U.S. government contractor. A native Angeleno, she's traveled the world on $5 a day, taught trad climbing safety classes and is an avid mountaineer. Follow her on Twitter.

'Transparency is a Great Thing': Secretive Big Data Firm Palantir Goes Public

Palantir Technologies' stock rose more than 30% after the enigmatic, big data analytics company officially went public with a direct listing on the New York Stock Exchange Wednesday.

The stock under the ticker symbol PLTR ended the day at $9.50 per share or $2.25 above its $7.25 reference price.


Direct listings are less common than IPOs which rely on investment bankers to underwrite an offering, but companies including Slack Technologies and Spotify have moved forward, betting on their broad brand name recognition, and to avoid incurring extra fees. Under the arrangement, employees and other early investors directly sell their shares upon the company's Wall Street debut.

But, Palantir's direct listing is unique in that it includes a lockup period that prevents employees and legacy investors from selling most of their stock. Analysts say this provides new shareholders the opportunity to participate in the listing without substantial risk of short-term decline in price.

Palantir's software offerings, including Gotham and Foundry, are used by 125 customers across more than 150 countries and in 36 industries. It has touted its government work as "central to defense and intelligence operations in the United States and its allies abroad," according to its Securities and Exchange Commission filing.

Industry analysts expressed concern that the company's overall customer count is low. Palantir Chief Financial Officer David Glazer declined to discuss how many of its clients are government versus enterprise in an interview Wednesday. Though it has increased its focus on the commercial market, Palantir's government portfolio has increased to 54% in the first half of 2020, wrote analyst Rohit Kulkarni, executive director of MKM Partners, in a note.

Glazer said that due to the company's 17-year history, "there's a real moat" that competitors have to overcome to match their software abilities. Glazer said that the company essentially "turned off our growth machine" to build out Foundry.

"You're really going to see us be able to scale" to more customers faster and at lower cost," Glazer said. "No one else is going to be able to do that without a huge amount of resources, huge amount of engineering talent against it, and so I think we have a very strong moat."

Analysts ask: Does it Scale?

Because many of Palantir's largest and legacy customers are governments, Brendan Burke, a senior emerging tech analyst with PitchBook, said the overall low customer count "suggests that the platform has not scaled rapidly across new customers" and that Palantir "earns a relatively small percentage of its revenue from (those) recently won customers." He added that the company "will be challenged to maintain its expected 2020 revenue growth of 42% year-over-year given its reliance on new government contract wins and the long sales cycle of its data integration platform Foundry."

In its filings, Palantir estimates its total addressable market to be roughly $119 billion over both commercial and government sectors. And it has provided its software to commercial industries, including energy, transportation, financial services and healthcare. Burke said he found the addressable market in terms of actual end-user spending for data analytics is in the range of $24 billion, multiple times below Palantir's assessment.

For now, the company remains far from profitable. In its SEC filing, it warned investors that it has "incurred losses each year since its inception" and "may never achieve or maintain profitability."

While the company reported $742.6 million in revenue in 2019, it saw a loss of $579.6 million. Similarly, in 2018, the company recorded a $580 million loss on $595.4 million revenue. So far, in the first half of 2020, Palantir has reported a $164.7 million loss on $481.2 million in revenue.

Palantir, which employs more than 2,390 people globally, said it's in the process of entering new and emerging markets, including its newer foray into COVID-19 response efforts as well as defense, law enforcement, national security, and government agencies.

As of the first half of 2020, it reported its total remaining deal value of contracts awarded by government agencies was $1.2 billion.

Formerly based in Palo Alto, Calif., Palantir co-founder and chief executive Alexander Karp wrote a scathing rejection of Silicon Valley culture in his introduction to the company's S-1 filing, and the company moved its headquarters to Denver, Colorado this summer.

Founded in 2003, Palantir has always been accused of secrecy because of its government-related work, but it does have legit U.S. intelligence roots. The company's only early outside investment came from the Central Intelligence Agency's venture capital arm, In-Q-Tel, which helped develop its software to analyze reams of siloed data. Their tech was particularly well-suited to intelligence agency uses and has been primarily used for counterterrorism as well as law enforcement since its early days. Today it's used by the U.S. military, including the U.S. Special Operations Command, the Centers for Disease Control, the Department of Homeland Security and Securities and Exchange Commission, among others.

The use of its software by DHS has led to accusations that its software is being used by ICE to help it find and deport immigrants under the Trump administration. And the company has seen activists protest outside of its now former Palo Alto offices as a result. Co-founder and billionaire investor Peter Thiel is a prominent supporter of President Donald Trump.

Glazer said "the problem set that our software is deployed against is complex, it's nuanced, and we welcome the internal discussion." He added that "transparency is a great thing for the company" and that by going public "we'll be able to share more over time about our customers" though that will be more difficult for customers in the intelligence and government sector.

Kulkarni, the executive director of MKM Partners, wrote that "Palantir's products look extremely robust and truly 'battle tested'" — its software can be installed on a submarine and a tablet with no internet connectivity, for example — but that it is still early days with direct sales.

In addition to lack of profitability, investment risks include the company's many shareholders — and likely sellers once the lockup period ends after the company announces fourth quarter earnings. Its top three customers make up 33% of its revenue in 2018 and in 2019, those customers made up 28% and had been with the company on average for eight years.

Kulkarni criticized Palantir for providing a "very limited disclosure" even though it has more than 15 years of operating history.

"We found Palantir's S-1 filing fairly light on customer trends, SaaS metrics," Kulkarni wrote. "Also, the company has disclosed only six trailing quarters worth of financials and has not provided any guidance."

Still, Kulkarni wrote that he expected significant investor appetite given the company's "enigmatic" history and ongoing IPO pricing trends. He added that the company would trade at a slight discount to its relative growth rate, given its customer concentration, unclear visibility and customer size.

Palantir's Unconventional Voting Structure

'Transparency is a Great Thing': Secretive Big Data Firm Palantir Goes Public

The company's voting and governance structure has given many industry analysts pause. Michael Weisbach, the Ralph W. Kurtz finance chair at Ohio State University's Fisher College of Business, said it creates an extra class of stock that gives founders effective control of the company no matter how much stock they actually own.

Such efforts are "the exception but not that rare," and he noted that the Ford family set up a similar structure to ensure their control of Ford Motor company as did Comcast. The variable structure allows the founders to control up to 49.999999% of the total voting power of the stock.

Burke, a senior emerging tech analyst with PitchBook, said that while it's common for founder-led startups to remain controlled by the founder, Palantir has further pushed the envelope with this new share class structure.

"The broader impact is limiting the ability of shareholders to influence the company's strategy," Burke said. "This share class structure prevents common shareholders from making activist decisions for the company's future."

Kulkarni wrote that the structure gives the company's three founders "unilateral voting control over the company in perpetuity."

Burke said this is a continuing trend in the market, especially because there hasn't been significant pushback from investors.

Other concerns include worries about the "growing ethical orientation of investors" that could lead to backlash over Palantir's involvement with government agencies "shown to violate human rights," Burke said. "We haven't seen the company adapt to these concerns yet."

Perhaps to assuage this concern, Palantir pointed to its privacy and civil liberties safeguards, its focus on supporting "Western liberal democracy and its strategic allies" and it also took a stand on the Chinese Communist Party, assuring investors perhaps wary of another ByteDance Ltd.-related debacle that it doesn't work with the party or host its platforms in China because it is "inconsistent with our culture and mission."

*Editor's Note: Spencer Rascoff, the executive chairman and cofounder of dot.LA and Zillow, has been a member of Palantir's board of directors since July 2020 and is also an investor in the company.

___

Do you have a story that needs to be told? My DMs are open on Twitter @latams. You can also email me at tami(at)dot.la, or ask for my Signal.

tami@dot.la

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Christian Hetrick

Christian Hetrick is dot.LA's Entertainment Tech Reporter. He was formerly a business reporter for the Philadelphia Inquirer and reported on New Jersey politics for the Observer and the Press of Atlantic City.

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When avatar startup Genies raised $150 million in April, the company released an unusual message to the public: “Farewell.”

The Marina del Rey-based unicorn, which makes cartoon-like avatars for celebrities and aims to “build an avatar for every single person on Earth,” didn’t go under. Rather, Genies announced it would stay quiet for a while to focus on building avatar-creation products.

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Jamie Williams
­Jamie Williams is the host of the “PCH Driven” podcast, a show about Southern California entrepreneurs, innovators and its driven leaders on their road to success. The series celebrates and reveals the wonders of the human spirit and explores the motivations behind what drives us.
Jason Wise holding wine glass
Image courtesy of Jason Wise

Jason Wise may still consider himself a little kid, but the 33-year-old filmmaker is building an IMDB page that rivals colleagues twice his age.

As the director behind SOMM, SOMM2, SOMM3, and the upcoming SOMM4, Wise has made a career producing award-winning documentary films that peer deep into the wine industry in Southern California and around the world.

On this episode of the PCH Driven podcast, he talks about life growing up in Cleveland as a horrible student, filmmaking, Los Angeles and his latest entrepreneurial endeavor: A streaming service called SOMMTV that features–what else?–documentaries about wine.

The conversation covers some serious ground, but the themes of wine and film work to anchor the discussion, and Wise dispenses bits of sage filmmaking advice.

“With a documentary you can just start filming right now,” he says. “That’s how SOMM came about. I got tossed into that world during the frustration of trying to make a different film, and I just started filming it, because no one could stop me because I was paying for it myself. That’s the thing with docs,” or “The good thing about SOMM is that you can explain it in one sentence: ‘The hardest test in the world is about wine, and you’ve never heard about it.’”

…Or at least maybe you hadn’t before he made his first film. Now with three SOMM documentaries under his belt, Wise is nearing completion of “SOMM4: Cup of Salvation,” which examines the history of wine’s relationship with religion. Wise says it’s “a wild film,” that spans multiple countries, the Vatican and even an active warzone. As he puts it, the idea is to show that “wine is about every subject,” rather than “every subject is about wine.”

For Wise, the transition to launching his own streaming service came out of his frustration with existing platforms holding too much power over the value of the content he produces.

“Do we want Netflix to tell us what our projects are worth or do we want the audience to do that?” he asks.

But unlike giants in the space, SOMMTV has adopted a gradual approach of just adding small bits of content as they develop. Without the need to license 500 or 1,000 hours of programming, Wise has been able to basically bootstrap SOMMTV and provide short form content and other more experimental offerings that typically get passed over by the Hulus and Disneys of the world.

So far, he says, the experiment is working, and now Wise is looking to raise some serious capital to keep up with the voracious appetites of his subscribers.

“Send those VCs my way,” Wise jokes.

Subscribe to PCH Driven on Apple, Stitcher, Spotify, iHeart, Google or wherever you get your podcasts.

dot.LA reporter David Shultz contributed to this report.

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