A quick search of Palantir on Google will result in a bunch of headlines that picture the data mining and analysis firm as a secretive unicorn. Boasting a product history that includes helping locate immigrants for the US Immigration and Customs Enforcement Agency (ICE), connecting databases for intelligence agencies like the likes of the CIA (Central Intelligence Agency) and the FBI (Federal Bureau of Investigation) and winning no-bid contracts to gather data about the COVID-19 pandemic for the White House Pandemic Task Force, there certainly is something dystopian about Palantir.
While shrouded in controversies related to fraud, conspiracy, privacy and copyright infringement and heavily relying on public agencies for nearly half of its business, Palantir nonetheless reached a market value of nearly $22 billion when it debuted on the New York Stock Exchange a few weeks ago, while its IPO was met with much fanfare.
A Brief history of Palantir
Founded in 2004 by Peter Thiel, Nathan Gettings, Joe Lonsdale, Stephen Cohen and Alex Karp, Palantir got its start working with US soldiers in Iraq and Afghanistan. Although the company’s engineers and products didn't do any spying themselves, they collected and analysed information which was eventually fed to the Pentagon and the CIA. Headquartered in Denver, Colorado, the company’s mining platform integrates massive data sets from different sources ranging from phone records and airline reservations to social media postings and financial documents to assess a number of risks, threats and opportunities that human analysts might have missed.
The company is known for three projects – Palantir Gotham, Palantir Metropolis and Palantir Foundry. More specifically, Gotham is used by counter-terrorism analysts at the US Intelligence Community (USIC), as well as the US Department of Defense, however, in the past it was also used by fraud investigators at the Recovery Accountability and Transparency Board, a former federal agency which was tasked with overseeing spending under the American Recovery and Reinvestment Act of 2009. Gotham generates over half the firm's revenue, while earnings from government contracts reached $345,5 million in 2019.
On the other hand, Palantir Metropolis is used by hedge funds, banks and financial services firms, whereas Foundry, the enterprise-oriented version of its data mining platform is employed by corporate clients like Morgan Stanley, Airbus, Fiat Chrysler and others, serving close to 125 customers across the public and private sectors.
But the data mining giant’s rise has also been shadowed by concerns that its tools enable surveillance and data analysis that sidestep people’s right to privacy, while it is considered by some as ripe of abuse. Amnesty International has accused the company of failing to protect human rights with insufficient due diligence into who it is offering its services to, while in the US, the use of its technology to track undocumented immigrants created a public outcry. In the UK, the health data handled by the company also raised alarms.
Others have sung its praises. Back in 2009, it was thanks to Palantir’s software that the Information Warfare Monitor uncovered what was known as the GhostNet, a China-based cyber espionage network targeting numerous computers including the Dalai Lama's office and various national embassies amongst others. US spies and special forces have deployed Palantir to sort battlefield intelligence and it has helped planners dodge roadside bombs, whereas the FBI uses it in criminal probes. The company itself has on many occasions defended its government work, maintaining that its clients own and control the data.
Despite the controversies, the company is active in more than 150 countries. In 2019, its revenue rose 25% to $742.6 million, while in contrast, its net loss narrowed slightly from $580 million to $579.6 million.
Lord of the Rings fans would have probably recognised the connection of the data company’s name with the all-powerful, magical artifact from J.R.R. Tolkien’s Lord of the Rings, also called Palantir. Indeed, its name was inspired by the collection of indestructible crystal stones used for communication and to see events in other parts of the world whether past or future.
Palantir goes public
In September 2020, Palantir started trading on the New York Stock Exchange. Rather than going for a traditional offering, the firm chose a direct listing which means that it did not raise funds for itself by selling shares and instead, existing shareholders were able to sell and liquidate their shares on the open market. Billionaire co-founders Thiel and Karp sold a combined 41.45 million shares for more than $400 million. Marking noteworthy initial gains, Palantir had a reference price of $7.25 but closed at $9.50.
So, should investors chase this high-growth tech stock? Palantir is valued at about 19 times this year’s sales which makes it cheaper than many other recent tech IPOs. At the same time, it is generating accelerating revenue growth with narrowing losses. With growth likely to pick up in 2020 as demand for the company’s services increases due to COVID-19, much of this growth will likely come from government-related entities, yet, Palantir still has a lot of growth to tap into in the commercial space, making it an attractive buy.
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