Market Edges Toward Euphoria, Despite Pandemic’s Toll

Investors of all stripes piled into stocks this year, creating levels of froth reminiscent of the dot-com boom. Analysts say there’s room to go higher, but some worry about a bubble.

#airbnb, #coronavirus-2019-ncov, #doordash-mobile-app, #etsy-inc, #federal-reserve-system, #initial-public-offerings, #palantir-technologies, #robinhood-financial-llc, #standardpoors-500-stock-index, #stimulus-economic, #stocks-and-bonds

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Lots of happy people as Palantir and Asana spike on first day of trading

The markets are closed and the verdicts are in: investors liked what they saw in Palantir and Asana .

The two companies, which debuted this morning in dual (and duel) direct listings, continued to prove that enterprise tech companies without the brand recognition of Spotify (which conducted its own direct listing back in 2018) can make direct listings work. So far, the evidence is decent that the mechanism isn’t throwing off investors.

Michael Nagle/Bloomberg via Getty Images

Asana closed its first trading day at $28.80 a share — a gain of 37% against its reference price of $21 a share. The company’s first trade was at $27. Meanwhile, Palantir closed the day at $9.73, a gain of 34% against its reference price of $7.25. Its first trade was at $10. Asana is valued at about $4.3 billion at close, while Palantir reached $24.8 billion, based on its fully diluted share count, including recent securities sold.

As an aside, my Equity co-host Natasha Mascarenhas and I did an “Equity Shot” talking more about these early numbers. Tune in if you want to hear our discussion and analysis:

That done, with big bold numbers on the board, there were a number of winners.

First and foremost, Founders Fund, which is the only major investor shared between the two companies, has a lot of capital incoming. The firm owns 5.8% of Asana and approximately 6.6% of Palantir, netting it somewhere around $1.8 billion given today’s valuations (that’s definitely back-of-the-envelope math mind you).

Meanwhile, Benchmark owns 9.3% of Asana, and a number of other investors including Japanese insurer SOMPO, Disruptive Technology Solutions, UBS, and 8VC own significant stakes in Palantir.

The other winners are the founders of these companies. Dustin Moskovitz retains a 36% stake in Asana, while his cofounder Justin Rosenstein holds a 16.1% stake. Over at Palantir, the trio of founders of Alex Karp, Stephen Cohen, and Peter Thiel now have liquid billions at their collective disposal.

Asana founders Justin Rosenstein and Dustin Moskovitz. Photo via Asana

Of course, employees will be happy to get liquidity as well. Asana does not have a lockup period, and so its employees and insiders are free to trade. Palantir coupled a direct listing with a lockup, and so only about 28% of the company’s shares are eligible for sale today. The remainder will be authorized to be sold over the next year.

In an interview with Moskovitz shortly after the markets closed today, he said that “it’s been an exciting morning, but ultimately it’s just one step in a much longer journey towards fulfilling our mission” (you can read more of our interview with Moskovitz on Extra Crunch).

While it’s just one trading day, it was a positive one for both companies, and that provides even more evidence that the classic IPO now has stiff competition from direct listings and other alternative methods like SPACs.

#alex-karp, #asana, #benchmark, #dustin-moskovitz, #founders-fund, #fundings-exits, #justin-rosenstein, #palantir-technologies, #peter-thiel, #stephen-cohen

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Palantir Shares Up in Wall Street Debut

The Silicon Valley company leads a wave of tech outfits hoping to test the public markets in the busiest season for I.P.O.s in two decades.

#computers-and-the-internet, #initial-public-offerings, #karp-alex, #new-york-stock-exchange, #palantir-technologies, #snowflake-inc, #stocks-and-bonds, #thiel-peter-a

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Asana up 39% and Palantir still holding as both direct listings hit the public markets

Two direct listings in one day. Lots to talk about.

Asana started trading just a bit after noon Eastern today, quickly zooming to roughly $29 a share in early trading this afternoon. We are still waiting for the first trades of Palantir to hit the market.

Asana’s reference price was revealed yesterday by the NYSE, and it was set for $21 a share. The company had roughly 150 million shares of stock outstanding on a fully diluted basis, which gave it a pre-market reference value of $3.2 billion. Palantir for its part was assigned a reference price of $7.25 a share, giving it a $16 billion implied valuation. At its current share price, Asana is valued at roughly $4.4 billion.

The two companies trade on the NYSE, with Asana under ticker ASAN and Palantir under the ticker PLTR.

For both companies, which are well capitalized, a direct listing seemed to be the right approach to give early employees and other insiders a liquidity option while continuing to maintain tight control of the ship. One difference between the two initiatives is that Asana has no lockup for employee and other insider shares as is typically customary with a direct listing. Palantir pioneered a lockup provision with a direct listing that will allow only roughly 29% of the company’s shares to be available potentially for trading today. The remainder of those shares become eligible for sale over the coming months.

As with all direct listings, no shares are offered by the company upon market debut, and the reference prices published by the NYSE are imaginary if important mental benchmarks for where bankers believe a hypothetical price lies for these two companies.

As my colleague Jon Shieber described a few weeks ago, Asana is an interesting entry into the markets as a long-time SaaS company stalwart that continues to lose buckets of revenue. Despite fast revenue growth of roughly 71%, the company lost $118.6 million on revenues of $142.6 million in fiscal 2020 (Asana has a Feb 1 fiscal year calendar, so those figures are for the bulk of 2019).

The company was last valued at $1.5 billion in late 2018. It secured a bit more than $200 million in venture financing since its founding in 2009, and its founders Dustin Moskovitz and Justin Rosenstein hold large stakes in the company of roughly 36% and 16.1% respectively.

Over at Palantir, which we have covered extensively the past few weeks, the company is even more of an outlier, with large-contract government sales that accrue over many years. The company reported a total of 125 customers, losses of $580 million on revenues of $743 million last year, and projected revenues of just above $1 billion for 2020.

While Palantir’s reference price was below the final secondary trades held by the company in early September before it closed the window in the run up to its IPO, that price was well-above the average trading of the past 18 months.

For both companies now, the public markets beckon, and the first public quarterly results are coming due here in a few weeks. You can read more about Asana on the company’s investor relations page. Like so much else at Palantir, it doesn’t have an investor relations page (yet?) as of the time of writing this article, but presumably the company will want to connect with investors at some point in the near future, one would hope.

#asana, #direct-listing, #dustin-moskovitz, #finance, #fundings-exits, #justin-rosenstein, #palantir-technologies, #tc

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Palantir’s reference price values it at roughly $16 billion

Palantir is preparing for its public debut tomorrow morning on the NYSE after 17 years, and now we are getting some data on how the company’s shares are being valued by investors.

NYSE announced that the the company, which will be traded under the ticker PLTR, will have a reference price of $7.25 per share. Palantir is pursuing a direct listing, and so a reference price is merely a guide from the market to investors, and does not represent an actual trading price.

According to Palantir’s after-hours filing with the SEC this afternoon, the company has 1.16 billion Class A shares, 484 million Class B shares, and 1 million Class F shares on its cap table outstanding today, or a total of roughly 1.64 billion. Only Class A shares will trade, and Class B and F shares are convertible to Class A shares on a one-to-one basis. On a fully diluted basis, which Palantir says represents 2.2 billion shares total according to its most recent S-1 filing, the company is valued at $16 billion. The difference between those two aggregate numbers comes from outstanding stock performance grants, warrants, and other financial instruments.

The company will begin trading tomorrow morning, and as it is pursuing a direct listing, it will raise no primary capital as part of its debut.

We looked at Palantir’s stock price over time based on internal trades, which have gone from around $5 a share at the beginning of January 2019 to $9.17 a share earlier this month as the company prepped its prospectus to go public. A reference price of $7.25 is below those last trades, and also below a $10 price point that the Wall Street Journal reported on last week from Palantir bankers.

Of course, a reference point much like an IPO price is a mostly made-up number, and the real value of these shares will emerge from the market tomorrow as traders buy up shares from insiders.

In its afternoon filing today, Palantir said that approximately 475 million shares will be available for trade, with the remainder of the company’s shares locked up. Palantir pioneered a direct listing with a lockup, and so we will also see how this configuration affects its share price in the coming months as more shares hit the market.

#finance, #fundings-exits, #palantir-technologies

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Palantir publishes 2020 revenue guidance of $1.05B, will trade starting Sept 30th

It’s been a long road for Palantir as it has submitted amendment after amendment with the SEC related to its S-1 filing over the past two months. But after weeks of back and forth, it’s official: Palantir’s S-1 has been marked effective, which means that it has been accepted by the SEC and its target market the NYSE and should be ready to go as the company heads toward a public direct listing.

The company will begin trading on Wednesday, September 30th, under the ticker PLTR. Palantir originally had planned to start trading today, but moved the date back to the 29th a few filings ago, and finally ended up with the 30th. It is not floating new stock, although the company effectively raised “IPO money” back in July of about $1 billion from the private markets.

Palantir yesterday also offered revenue guidance to fill out the rest of its calendar year. The company estimated it would target roughly $1.05 billion in revenue for 2020, with non-GAAP operating income (excluding stock-based compensation and some other major line items) of $116-126 million. It expects its head count to remain roughly flat, growing just 4%.

Palantir had revenue of $595 million in 2018 and $743 million in 2019 according to its S-1 filing. If it hits its new target revenue, that would be a growth rate of 41% from last year, an acceleration from the roughly 25% growth rate in the previous year. The company’s Q3 revenue is estimated to reach $278-280 million with a growth rate of 46-47%, according to the company’s projections. So it seems to be accelerating every so slightly in the back half of this year as customers presumably start ramping up their IT purchases following the global pandemic.

While we have talked extensively about Palantir’s woes on governance, the reality behind the company is reasonably decent: it’s a quick if not rapid growth company, predominantly in software rather than services, with a growing customer base including both government and enterprise customers. The company has very recently started to talk more about its Apollo product, which has helped it cut sales times and make more of its product self-service, or at least, reduced-service.

For comparison though, check out Snowflake, which is also in the data infrastructure space although a bit lower in the stack and just went public last week. In most of 2018 (the company has a Feb 1 fiscal calendar), the company generated $97 million in revenue, and then grew to an astonishing $265 million for most of 2019. Snowflake had a net loss of 131% of revenue, compared to Palantir, which had a net loss of 78% of revenue last year.

Snowflake was considered one of the best IPOs of the year, given its high net dollar retention rate, extremely rapid growth, and huge market size waiting to be tapped. Palantir is a much larger company in terms of revenues, but growing significantly slower, but with a bit better cash flow position, particularly in the last two years as it has made its operations much more efficient.

We’ll have to wait a week to see how the markets react. For now though, it looks like Palantir has gotten out of its own way and can finally start trading.

#finance, #fundings-exits, #ipo, #palantir-technologies

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Following TechCrunch reporting, Palantir rapidly removes language allowing founders to “unilaterally adjust their total voting power”

Well, that was fast.

This morning, I analyzed Palantir’s newly published 5th amendment of its S-1 filing with the SEC as it pursues a public direct listing on the NYSE. I called the company “not a democracy” after it added new provisions to create a special mechanism called “Stockholder Party Excluded Shares” that would, in the language of Palantir, allow the company’s trio of founders to “unilaterally adjust their total voting power” at will, now and into the future.

Well, Palantir has now filed a 6th amendment with the SEC just a few hours after it filed its previous amendment, and the company has removed all references to this special mechanism from its SEC filing.

The 19 mentions of “Stockholder Party Excluded Shares” and multiple sections where the mechanism were discussed and explained have now been entirely excised. In addition, the company’s line about its founders having the capability to “unilaterally adjust their total voting power” has also been similarly removed.

Outside of those changes, the two different versions of the company’s S-1 filing are essentially identical. And for those keeping score from this morning, in this tenth rendition of the company’s public offering documents including its previous draft registration statements, the latest filing includes 168 mentions of “voting power” — identical to the number this morning. Here’s an updated chart:

It’s a quick about-face for the enterprise software company, which has spent weeks prepping for its direct listing, originally scheduled for September 23 and which has since been moved back to September 29. While corporate governance has certainly gotten weaker over the past few years, Palantir’s newly introduced language this morning stretched the definition of shareholder governance quite frankly to its breaking point. Walking back those changes was the right call.

There’s no telling whether the SEC, NYSE, potential investors in the direct listing, executives, or insiders pushed for these changes. However, companies rarely make such rapid changes with their SEC filings (then again, I’ve never seen an IPO with so many amendments in the first place, so we are in uncharted territory). Palantir remains in an SEC-mandated quiet period.

We’ll continue to monitor developments as Palantir heads to the public markets presumably next week.

#direct-listing, #finance, #palantir-technologies

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In its 4th revision to the SEC, Palantir tries to explain what the hell is going on

For a company vaunted for its clandestine government work and strong engineering culture, you can’t help but wonder if the government’s bureaucratic norms and paperwork pushing are starting to flood into the Shire.

When most companies go public, they file a Form S-1 with the SEC, wait a few weeks through the investor road show, and then submit an amended filing with the final details of the offering before trading commences. Simple, easy, effective. No one wants to mess with the SEC, and so top securities law firms work diligently to ensure that everything is in order when that initial form is filed.

Palantir has done nothing of the sort. It filed a confidential draft registration statement back in July. It filed an amendment. It filed another amendment. It filed its official S-1. Then an amendment, and an amendment, and an amendment, and an amendment. And it’s still not trading, so another amendment is in the offing.

Palantir is not a complicated business. It’s a software business (mostly) today with 125 customers, making real revenues, and with a decent story to tell investors. And yet, you can’t help but look agog at the level of complication and paperwork the company has created for itself by just trying to be a little bit different from everyone else.

One part of that compilation was its invention of a direct listing with a lockup. When a company directly lists on a stock exchange, recent tradition holds that insiders are not locked up, which means that they will be allowed to start buying and selling their shares as soon as the company hits the market. For reasons that are known only to Palantir, the company decided to mostly block employee trading, limiting the float that can be expected when it begins trading.

So in today’s 4th amendment to its S-1, we have some updated figures of what the lockup will look like. Palantir will lock up about 80% of shares in the company, allowing about 380 million shares to trade on opening day. Eight million more shares will come on the market in November when certain restricted stock units vest for company employees, and other vested RSUs will also not be beholden to the lockup agreement as they come next year.

This direct listing with lockup was compilation number one. Complication number two is the absolute byzantine ownership structure that Palantir has selected for itself. In a note added this morning in its filing, the company admits that “This is a novel capital structure that differs significantly from those of other companies that have dual or multiple class capital structures.” That’s quite an understatement.

In Palantir’s governance structure, it will have three classes of shares. Class A shares have 1 vote, Class B shares have 10 votes, and Class F shares (for “Founder”) have a variable number of votes that will ensure that Palantir’s founders Alex Karp, Stephen Cohen and Peter Thiel maintain 49.999999% control of the company essentially in perpetuity (or at least, until they want to give it up by selling).

Today, the company provided a handy table on exactly what that all means, since it’s not simple at all. Let’s take a look at a cleaned-up version of their voting table, based on which founders are employed at Palantir at a specific time:

The key here is that so long as the three founders are all actively working at Palantir, their ownership is meant to be capped at 49.999999% of the company. In other words, any other shares they own of the Class A and Class B varietals are included within that ownership number. This is something I have gotten wrong, so mea culpa, although frankly, if you need to file a half dozen amendments to the SEC to explain what you are doing, I feel like I am in good company.

Where it gets bizarre is if one of the three founders leaves. In those scenarios, the three of them collectively will have even more power than if they all actually work at the company simultaneously. For instance, if Thiel leaves the company (which in his case means resigning from the board), the three founders actually increase their voting power collectively from 49.999999% to 64.999999%, assuming Thiel doesn’t sell any of his own shares.What do those calculations ultimately mean? Well, Palantir was graceful enough to put an explanation in its fourth amendment on exactly what it all boils down to:

While the Board retains the power to hire and remove members of our management, which currently includes two of our Founders, the Founders would continue to beneficially own shares of Class F common stock and Class B common stock and be able to exercise control over matters submitted to a vote of our stockholders so long as our Founders who are then party to the Founder Voting Agreement and certain of their affiliates collectively meet the Ownership Threshold on the applicable record date, even if one or more of our Founders resigns from the Company or is terminated. (Emphasis mine)

In other words, if you strike them down, they shall become more powerful than you can possibly imagine, Shareholder.

Palantir in this filing also made clear that there is at least some floor by which the three founders have to collectively own the company. With all three of them onboard, they have to maintain ownership over 100 million shares of the company, or slightly less than 5%. So they can’t, say, own 0.0001% of the company and control 49.999999% of the vote. What a relief!

Look, founder control is a mainstay of modern Silicon Valley tech IPOs. But we’ve never seen such an extensive, interlocking set of systems designed to make a company absolutely impregnable to any form of external governance. I can understand the concerns with Palantir, given its work, its controversies, and the extreme media attention it receives. It probably needs some form of governance that provides it stability amidst the maelstrom. But all of this sets such a bad precedent for the rest of Silicon Valley that I hope it’s recognized in their share price.

#alex-karp, #finance, #fundings-exits, #palantir-technologies, #peter-thiel, #stephen-cohen

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As direct listing looms, Palantir insiders are accelerating stock sales

According to Palantir’s latest S-1 amended filing published this morning, the company intends to start trading in two weeks on September 23 under the ticker PLTR.

That gives us a bit of time to speculate about how the company will perform on the public markets, particularly given Palantir’s unusually shareholder-hostile governance structure, which was a topic at today’s Investor Day event.

The good news: Palantir gave us the latest secondary sale trading data for shares traded by insiders before the company starts trading publicly. We also now know how insiders are going to register their shares, giving us some hints about who is excited to double down and who is looking to move on from the company.

Palantir has a large number of insiders today compared to other tech companies that recently filed to go public. According to its S-1, the company has 2,794 owners of its Class A stock, and 738 of its Class B stock. While there is almost certainly overlap between those two groups, it indicates that there are thousands of owners of Palantir shares today. Compare those figures to Snowflake, which had 1,026 owners, or Sumo Logic, which had 473 owners.

Palantir has more shareholders since it has been around longer (it’s approaching two decades), many early and even some recent employees would have had to exercise their stock options by now lest they expire, and there has been a robust secondary market for shares that has allowed new investors to buy into the company.

Given the number of people involved and the number of shares bought and sold over the past 18 months, we can get some insight regarding how insiders perceive Palantir’s value.

#alex-karp, #finance, #fundings-exits, #palantir-technologies, #peter-thiel

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In amended filing, Palantir admits it won’t have independent board governance for up to a year

When we leaked Palantir’s S-1 IPO filing a week and a half ago, one of the more bizarre components that came out of that document was the company’s corporate governance. In a unique three-class voting structure, Palantir founders Alex Karp, Stephen Cohen, and Peter Thiel will be given a special “Class F” share that will ensure they hold 49.999999% of the ownership of the company in perpetuity — even if they sell the underlying shares.

While founders of startups in recent years have often had special shares with extra votes (typically 10 votes for their special shares compared to one vote for standard shares), those votes dissipate if the underlying shares are sold. Palantir’s model is unique in allowing founders to have a commanding vote even if they were to sell their shares — in other words, voting power without underlying shareholder power, in direct contradiction to modern shareholder theory.

That strange controlling provision has clearly caught the attention of the SEC and the NYSE. In an amended S-1 filing with the SEC submitted this afternoon, Palantir made changes to its documents that made clear that its corporate governance will be more opaque far after its public debut.

First, Palantir has added a new risk factor to its original prospectus, which we will copy here in full because it really tells you a lot about where the company is headed on corporate governance:

Although we currently are not considered to be a “controlled company” under the NYSE corporate governance rules, we may in the future become a controlled company due to the concentration of voting power among our Founders and their affiliates.

Although we currently are not considered to be a “controlled company” under the NYSE corporate governance rules, we may in the future become a controlled company due to the concentration of voting power among our Founders and their affiliates resulting from the issuance of our Class F common stock. See “—The multiple class structure of our common stock, together with the Founder Voting Trust Agreement and the Founder Voting Agreement, have the effect of concentrating voting power with certain stockholders, in particular, our Founders and their affiliates, which will effectively eliminate your ability to influence the outcome of important transactions, including a change in control.” above. A “controlled company” pursuant to the NYSE corporate governance rules is a company of which more than 50% of the voting power is held by an individual, group, or another company. In the event that our Founders or other stockholders acquire more than 50% of the voting power of the Company, we may in the future be able to rely on the “controlled company” exemptions under the NYSE corporate governance rules due to this concentration of voting power and the ability of our Founders and their affiliates to act as a group. If we were a controlled company, we would be eligible to and could elect not to comply with certain of the NYSE corporate governance standards. Such standards include the requirement that a majority of directors on our board of directors are independent directors and the requirement that our compensation committee and nominating and corporate governance committee consist entirely of independent directors. In such a case, if the interests of our stockholders differ from the group of stockholders holding a majority of the voting power, our stockholders would not have the same protection afforded to stockholders of companies that are subject to all of the NYSE corporate governance standards, and the ability of our independent directors to influence our business policies and corporate matters may be reduced.

In other words, public shareholders in the company will likely legally have zero input into the governance of the company. The key line here is “If we were a controlled company, we would be eligible to and could elect not to comply with certain of the NYSE corporate governance standards.”

Will Palantir be a controlled company? The answer is almost certainly yes, given another subtle change the company made in its amended filing today.

In its original filing, the company wrote that the Class F stock given to Karp, Cohen, and Thiel “will give these Founders the ability to control up to 49.999999% of the total voting power of our capital stock” (emphasis mine). Now in its restated filing, the company notes that the shares “will give these Founders the ability to control up to 49.999999% of the total voting power of our capital stock, and the Founders may, in certain circumstances, have voting power that, in the aggregate, exceeds 49.999999%” (emphasis again mine).

The reason of course is that Karp, Cohen, and Thiel own other classes of shares that when added to these special Class F “founder” shares, will give them a controlling stake in the company.

According to the filing, these new Class F shares were approved by existing shareholders on August 24. In the company’s prospectus sent to existing shareholders (a leaked copy of which was obtained by TechCrunch), the company explained across more than a dozen pages the rationale and the timeline for why existing shareholders should approve not having any further say in their company’s governance.

Given the diminished voting power of employee and investor shares, it is possible that these voting provisions will negatively impact the final price of those shares.

The company in its amended filing noted that it has finally determined that Alexander Moore, Spencer Rascoff, and Alexandra Schiff, who were recently hired as new independent directors of the company, are in fact independent.

That said, Palantir also admitted that it doesn’t intend to have independent governance for a while at the company. From its amended filing and changed from its original filing:

Certain phase-in periods with respect to director independence will be available to us under the applicable NYSE rules. These phase-in periods allow us a period of one year from our listing date to have a Board of Directors with a majority of independent directors. Our Board of Directors will have a majority of independent directors within one year of our listing on the NYSE.

It also won’t have independent board governance of its audit committee either:

We intend to rely on the phase-in provisions of Rule 10A-3 of the Exchange Act and the NYSE transition rules applicable to companies completing an initial listing, and we plan to have an audit committee comprised entirely of at least three directors that are independent for purposes of serving on an audit committee within one year after our listing date.

Currently, the company has only two independent directors on its audit committee, Moore and Rascoff.

The SEC and NYSE seem to be pushing back against Palantir on its corporate governance, but let’s just be clear: we have never seen anything like this before with a startup IPO.

#corporate-governance, #finance, #fundings-exits, #government, #palantir-technologies

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The bullish case for Palantir’s direct listing

The Palantir S-1 finally dropped yesterday after TechCrunch spilled a bunch of its guts last Friday. You can read the filing here, if you are so inclined.

Today, however, instead of our usual overview, I have a different goal: We’re going to be a bit more specific.

It’s fun and easy to clown on Palantir’s ridiculous ownership structure, in which a few dudes have decided that, in perpetuity, they must remain co-Lords of the Ring. And, sure, the company is smaller in terms of revenue-scale than many expected (a bit more Hobbiton than Bree, really). And, yes, its net losses are somewhat staggering (post-Helm’s Deep Saruman?), reaching nearly 100% of revenue in 2018.

But things have gotten better in Palantir-land (Mordor?) in recent quarters, which we should note.

So, in light of the generally negative reviews of Palantir’s finances (similar to what is left of Moria?) that I’ve seen in the media and from investors both publicly and privately, here are the bullish bits about the impending direct listing.

The good stuff

In brief, falling net losses in absolute and percent-of-revenue terms paint the picture of a company that is past a high-burn period, allowing profitability to continue to improve; improving gross margins point to a company that is less service-focused and more software-driven over time; the company’s falling operating cash burn is encouraging, and new customer revenue appears sharply higher in 2020 than 2019.

Let’s examine each in order:

  • Falling net losses in absolute terms: Palantir lost fractionally less money in 2019 than 2018, but it was a decline all the same. More recently, the first two quarters of 2020 have seen Palantir cut its net loss from $280.5 million in 2019 to $164.7 million. Even better, the company grew during the same period, which means that in percent-of-revenue terms, Palantir did even better.

    #direct-listing, #fundings-exits, #palantir, #palantir-technologies, #peter-thiel, #revenue, #s-1, #startups, #tc

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What’s a Palantir? The Tech Industry’s Next Big I.P.O.

A tech start-up named for objects in “The Lord of the Rings” has become a major government contractor. But what it does is not easy to understand.

#artificial-intelligence, #computers-and-the-internet, #defense-contracts, #government-contracts-and-procurement, #immigration-and-customs-enforcement-us, #initial-public-offerings, #karp-alex, #palantir-technologies, #software, #start-ups, #thiel-peter-a, #trump-donald-j

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Palantir targeting 3 class voting structure according to leaked S-1, giving founders 49.999999% control in perpetuity

We are continuing to make progress through Palantir’s leaked S-1 filing, which TechCrunch attained a copy of recently. We have covered the company’s financials this morning, and this afternoon we talked about the company’s customer concentration. Now I want to talk a bit about its ownership and stock valuation.

First, let’s talk about ownership. Having read through our leaked copy of the S-1 the past few hours, I can only summarize the situation as: wow, this is a really complicated ownership structure.

At the highest level, the founders of the company — Peter Thiel, Alex Karp, and Stephen Cohen — own 30.2% of the stock of the company as of the end of July of this year. Thiel controls much more than that though through his myriad investments made through Founders Fund, Mithril Capital, Clarium Capital, and quite literally dozens of other investment management funds listed in the filing.

In terms of overall corporate voting power today, Thiel has 28.4% at his disposal, Karp 8.9%, and Cohen 3.1% according to the company’s calculation.

This is where things get interesting. As is typical with most modern tech IPOs, the founders of the business are looking to create multiple voting classes of stock in order to protect their voting power even while their total ownership of the company diminishes. It is pretty common today to see a two-class structure where the plebian stock class for retail investors offers one vote, and a special class is offered to founders that has 10 votes. This allows a founder with 5% of the company through these special shares to control a majority of a company’s voting authority.

Palantir wants to push the envelope further though with a three-class structure that would prioritize Thiel, Karp, and Cohen above all others. In Palantir’s model, there would be a Class A share with 1 vote, a Class B share with 10 votes, and a special “Class F” share with variable votes.

Class F shares would share 49.999999% (six 9s in the decimal – I counted twice) of the voting power of Palantir at all times, regardless of the underlying ownership of shares. Important to note that that is not a “majority” and thus they will not have literally a controlling stake in the public company.

In fact, Palantir has spent much of the last few months building the case for why it needs this special tripartite system of corporate governance. It hired several new members to its board of directors including Alexandra Schiff, Spencer Rascoff, and Alexander Moore earlier this year in order to build a “Special Governance Committee” that would make these changes to the company’s Delaware charter. Given that the founders were practically the only directors of the company outside of Adam Ross, it was hard to give themselves control by their own vote.

Palantir’s leaked S-1 has dozens of pages of the timeline and discussions that resulted, and why the committee ended up deciding to go with what can only be described as Byzantine method of voting.

That resolution still has to be supported by shareholders and of course, Wall Street. Much in the way that Palantir is going to have a lockup on its employees in a novel variant of the direct listing model, it seems it wants to pioneer a new model of founder ownership as well.

Stock valuation

Now, let’s switch over to a little chart showing Palantir’s preferred stock prices since inception and the current carrying value of those shares:

Immediately, we can see here that Palantir starting in 2013 really came into its own. The company, which was founded in 2003, showed little sign of deep outside investor interest for much of its early history. Its preferred stock share price grew linearly and slowly from its Series C in 2008 to its Series H in 2013.

Then, something interesting happens. There is almost immediately a radically increasing growth in the value of the stock with new issues in the Series H through K showing quick growth in value.

Recent stock sales have been common shares, and not preferred.

According to the company’s leaked S-1 we attained, only three shareholders passed the 5% threshold required for SEC disclosure. Founders Fund is listed as owning 12.7% of the company’s Class B shares, Japanese insurance giant SOMPO Holdings is listed as owning 20.3% of the company’s Class A shares, and investment bank UBS is at 5.7% of Class A shares. The company said that it had 529 million Class A shares and 1.09 billion Class B shares outstanding as of the end of June this year.

#direct-listing, #fundings-exits, #ipo, #palantir-technologies

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#airbnb, #coronavirus-2019-ncov, #hennessy-paul-executive, #initial-public-offerings, #nasdaq-composite-index, #nasdaq-stock-market, #palantir-technologies, #start-ups, #vroom-inc, #zoom-information-inc

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