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Palantir's IPO Plans Are Just As Secretive As The Company Itself

By Zacks Investment ResearchStock MarketsSep 15, 2017 06:13AM ET
Palantir's IPO Plans Are Just As Secretive As The Company Itself
By Zacks Investment Research   |  Sep 15, 2017 06:13AM ET
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Palantir Technologies is a privately-held software and services company that has taken Silicon Valley by storm since its launch back in 2004. It was founded by Peter Thiel, Nathan Gettings, Joe Lonsdale, Stephen Cohen, Garry Tan, and Alex Karp (now CEO) with the idea of “creating the world’s best user experience for working with data, one that empowers people to ask and answer complex questions without requiring them to master querying languages, statistical modeling, or the command line.”

While its name is derived from the palantÍr, a “seeing stone” in J.R.R. Tolkein’s fantasy series Lord of the Rings—even its motto is “Save the Shire,” in reference to the home of the hobbits of Middle Earth—Palantir actually emerged from mobile payments giant PayPal’s (NASDAQ:PYPL) anti-fraud efforts (its co-founder Thiel also co-founded PayPal).

It’s also often considered to be one of the most secretive tech unicorns out there today. And by secretive, I mean a couple of things. For one, many people just haven’t heard of the company, especially outside of the tech and investing worlds; its Big Data focus is not nearly as flashy and exciting as ride-hailing or home-sharing. For another, Palantir and its technology is still best known for antiterrorism and spycraft, two avenues that must be secretive in order to thrive. It’s “Minority Report come true,” writes The Guardian.

What They Do

If you have heard of Palantir, then you know that the company’s technology has been used in several notable cases, including the discovery of the infamous Chinese espionage networks, GhostNet and the Shadow Network. There’s also their rumored-but-never-confirmed efforts to help take down Osama Bin Laden.

Even though its role in Bin Laden’s takedown will likely never be established as fact, what can be recognized, however, is Palantir’s extensive relationship with the U.S. government. Just as recently as six years ago, Palantir sold exclusively to the government sector. The FBI, CIA, IRS, CDC, Department of Homeland Security, Department of Defense, and several branches of the armed forces have all been customers, and up to 50% of the company’s business is tied to the public sector. Even In-Q-Tel, the CIA’s venture arm, was an early investor.

For instance, The Guardian goes on to note that the Pentagon “used Palantir software [in Iraq] to track patterns in roadside bomb deployment and worked out garage-door openers were being used as remote detonators by predicting it.”

Palantir also has commercial customers that rely on them to detect fraud, study consumer behavior, and search for a competitive edge against rivals; these clients include JPMorgan Chase (NYSE:JPM) , Hershey (NYSE:HSY) , and Bridgewater Associates, a global investment management firm, among others. Overall, private customers make up about 75% of Palantir’s revenue, notes Fortune.

Big Data Pioneer

As a whole, Palantir prides itself on being one of the world’s Big Data solutions experts. It’s a term that refers to a collection of structured and multi-structured data from traditional and digital sources inside and outside a company, representing a source for ongoing discovery and analysis. Examples of structured data include tweets (NYSE:TWTR) and other social media posts, while multi-structured data is something that can be derived from interactions between people and machines.

To help tackle Big Data, Palantir created two software suites for which it’s best known for. Formerly known as Palantir Finance, Palantir Metropolis is software for data integration, information management, and quantitative analytics. The software connects to commercial, proprietary, and public data sets and discovery trends, relationships and anomalies, including predictive analytics. And yes, this software suite is named after the home city of Superman.

For users like hedge funds, banks, and financial services firms, Metropolis provides a number of integrated applications in order to build up interactive models using all the data that is available in their system. This includes Custom Metric, Dashboard, Date Set, Explorer, Regression, and Spreadsheet applications.

The other is Palantir Gotham, formerly known as Palantir Government. This software integrates structured and unstructured data, provides search and discovery capabilities, knowledge management, and secure collaboration. Like Metropolis, Gotham is named after the home city of fellow superhero Batman.

Gotham provides a suite of tools that are optimized for semantic, temporal, geospatial, and full-text analysis. Users can seamlessly drag and drop data objects from one application to the next, and applications include Graphs, Maps, Object Explorer, Browser, and Mobile.

IPO Buzz

With a valuation at $20 billion, Palantir is one of the world’s most valuable venture-backed tech startups, but the company has yet to lay out any specific plans for an initial public offering. However, that hasn’t stopped IPO buzz from building, and investors have been excited for a while now about the potential for a Palantir market debut.

The hype grew even more once President Trump took office, as co-founder Thiel is his closest tech advisors and CEO Karp joined with some of the industry’s biggest names—including executives from Apple (NASDAQ:AAPL) , Amazon (NASDAQ:AMZN) , Alphabet (NASDAQ:GOOGL) , and Facebook (NASDAQ:FB) , just to name a few—during the president’s transition period earlier this year.

Despite its impressive valuation and presidential connections, Palantir is still not profitable, though the company expects to reach profitability this year. Palantir doesn’t report current revenue, but according to Fortune, it brought in over $1 billion in 2014, and that commercial bookings in 2015 almost doubled year-over-year.

But with buzz certainly comes controversy. In September 2016, Palantir was sued by the U.S. Department of Labor for discriminating against Asian applicants by routinely eliminating them in the screening process; Palantir recently settled, and will need to pay nearly $1.7 million in "back pay and other monetary relief.”

For now, talks of a Palantir IPO remain a combination of speculation and anticipation. Last October, Karp told The Wall Street Journal that the company was “positioned so [it] could go public,” a positive sign that Palantir could hit the market in the near future. And with its Big Data-focused business—something that will only become more prevalent with the rise of artificial intelligence—unique user base, and fundamentally secretive operations, Palantir’s potential IPO could be one for the books.

Zacks' 2017 IPO Watch List

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Palantir's IPO Plans Are Just As Secretive As The Company Itself

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Palantir's IPO Plans Are Just As Secretive As The Company Itself

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