Palantir closes below first trade after NYSE debut

Key Points
  • Palantir's public market debut on Wednesday comes 17 years after the company was created.
  • In pursuing a direct listing, Palantir is following the path of Spotify and Slack, allowing existing investors to sell shares rather than raising money in a stock sale.
  • Palantir shares traded actively in the private market, selling for between $4.17 and $11.50 this year.

In this article

Alex Karp, CEO of Palantir, speaking at the 2019 WEF in Davos, Switzerland on Jan. 23rd, 2019.

Palantir shares opened at $10 on Wednesday in the company's debut on the New York Stock Exchange, and closed the trading session at $9.50.

Palantir, which develops data analysis software for government agencies and large companies, held a direct listing of its stock, giving existing shareholders the opportunity to sell up to 20% of their stake to new investors. Cloud software developer Asana also went public via direct listing on Wednesday.

The initial price gives Palantir a market cap of $16.5 billion, based on 1.65 billion shares outstanding, which excludes various restricted stock units (RSUs), options and unvested stock. The fully diluted share count is 2.17 billion, so Palantir's stock market value will rise significantly as options, RSUs and unvested units convert to common stock.

Shares of Palantir, founded in 2003, have been widely traded on the private market for years, though the company has struggled to maintain the $20.4 billion valuation from a 2015 financing round. The stock at that time was valued at $11.38 and traded this year for between $4.17 and $11.50.

The NYSE gave a reference price on Tuesday of $7.25 a share, though no stock changed hands at that level. It traded as high as $11.42 on Wednesday before dropping below its opening price. Some current and former employees complained early in the trading session of being unable to access the system to sell their stock.

Palantir has sparked controversy for its willingness to do business with agencies like U.S Immigration and Customs Enforcement and for a governance structure that gives co-founders Peter Thiel, CEO Alex Karp and Stephen Cohen a third class of stock with outsized control. The company is a creation of Silicon Valley, but has tried to distance itself from the region by moving its headquarters to Colorado and slamming tech's "engineering elite" in its prospectus.

"Software projects with our nation's defense and intelligence agencies, whose missions are to keep us safe, have become controversial, while companies built on advertising dollars are commonplace," Karp wrote in the filing.  

Karp's letter was a less-than-subtle jab at Facebook, where Thiel made much of his fortune and still sits on the board. Through his various investing entities, Thiel is Palantir's largest shareholder.

Investors might not chase Palantir and will decide to wait: Renaissance Capital's Kathleen Smith
Investors might not chase Palantir and will decide to wait: Renaissance Capital's Kathleen Smith

Palantir said in an updated filing last week that it expects to record growth this year of 42%, to close 2020 with $1.06 billion in revenue. Adjusted operating income will come in at $121 million, excluding stock-based compensation and other costs, for a margin of 11.5%.

Revenue growth is accelerating from 2019, when the company reported a 25% increase to $742.6 million. For 2021, Palantir said it expects revenue growth of greater than 30%.

The company is allowing existing shareholders to sell up to one-fifth of their holdings now while hanging onto the rest until the lockup period expires after it reports results for the year ending Dec. 31. Palantir said 475.8 million shares will be available for sale on the first day of trading.

The challenge for Palantir is convincing investors that it's more of a high-growth tech company than a low-margin consulting services firm. The company has only 125 customers, spending on average $5.6 million in 2019.

Palantir has been investing in creating a product that's easier to sell and deploy. It wants investors to concentrate on what the company calls its contribution margin, or the revenue left after subtracting the costs it bears to generate sales. That number climbed to 55% in the second quarter from 18% a year earlier. 

Palantir was named one of CNBC's Disruptor 50 companies seven times, most recently ranking No. 34 in 2019.

WATCH: Palantir IPO: What does Palantir do?

Palantir IPO: What does Palantir do?
Palantir IPO: What does Palantir do?