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World News – CA – Demystifying Palantir: The Most Controversial Company To Go Public In 2020

Software and consulting firm doubles down on government agencies

Welcome to The Ticker, a series that examines everything you need to know about going public with companies

Seventeen years after its inception, Palantir will debut on the public market tomorrow, via direct listing Created in the aftermath of September 11 in an effort to protect the United States against future terrorist attacks, Palantir has become the one of the most controversial companies in the country At the center of the firestorm is the software company’s work with the Immigration and Customs Enforcement Agency (ICE), the government unit tasked with combating illegal immigration, its political positions and its co-founder polarizing Peter Thiel Despite Palantir’s dominance in public conversation – particularly under the Trump presidency – his product remained relatively opaque until its recent filing on the stock exchange

Before it goes on sale, we break down what you need to know about the company expected to be valued at $ 22 billion

At the basic level, Palantir provides data analysis software The company has two product lines: Gotham and Foundry Gotham was the first product to hit the market and focuses on public sector clients like US agencies Defense and Intelligence Foundry, created later, serves similar products for private companies such as Airbus, Credit Suisse, and BP Palantir is shy about other private companies it serves with case studies referring only to a « major U broadcast network » and « main payment processor » In 2019, 53% of Palantir’s revenue came from commercial customers, the remaining 47% from government agencies

Palantir product lines compete with a coterie of data companies such as Tableau, Alteryx, Google Sheets, Snowflake, and more. In this sense, Palantir is fundamentally a software publisher, serving its 125 customers with differentiated technical tools

But Palantir is far from a self-service software solution In order to onboard customers and increase the size of annual contracts, the company is investing a lot of effort in sales and customer support CEO Alex Karp spent 250 days on the road a year before Covid, mainly to close deals and increase their value This process is critical, as most Palantir customers only spend $ 100,000 in the first year of using the product , which makes their contribution margin negative In short, Palantir is effectively losing money on its clients in the first few years of an engagement

With effort and over time, clients steadily increase their spend, increasing the Average Annual Contract Value (ACV) to $ 56 million per year Palantir’s most mature customers generated $ 565 million 7 million out of 743 million dollars in revenue in 2019, with contribution margins of 55% These are a far cry from pure-play SaaS stocks (which can reach 75% and above), but nonetheless very solid

This illustrates how the Palantir model works: start with a white glove service, increase the ACV and improve the margins It remains to be seen whether Palantir will be able to scale this model or continue to rely on it. Karp intervention During the six-month period ended June 30, 2020, Palantir incurred net losses of $ 164.7 million and has not yet made a profit

Investors have grown accustomed to two-class share structures Companies like Facebook, Pinterest and Google have managed their equity so that the founders retain control after they go public This is achieved by giving the founders a share class that has inordinate voting power while new investors receive shares of a different class with less voting rights

Palantir takes this to a new level Rather than a two-class structure, the company splits the shares into classes A, B, and C. The different ways this could play out are complicated, but the take-home point is this : Founders Peter Thiel, Alex Karp and Stephen Cohen firmly control the future of the company

This will remain true even if the founders see their shares decline over time: with as little as 05% of the shares, the trio could retain more than 68% of the votes This represents a truly unique structure Investors in the company must recognize that, for better or worse, they are supporting a company that lives up to the vision of Thiel, Karp and Cohen

Palantir’s first outside investor was In-Q-Tel, the venture capital investment arm of the CIA Since this relationship was formed, US intelligence and the armed services have remained key clients of the Palantir’s data analytics platforms Indeed, in 2019 Palantir was awarded an $ 800 million contract from the Army alone

This partly explains the cheeky nationalism in Palantir’s S-1 dossier In a theatrical opening letter, CEO Alex Karp exposed the company’s geopolitical preferences:

« We have chosen our side and we know that our partners appreciate our commitment. We support them when it suits us and when it is not »

Explicitly, Palantir wishes to help « the West », noting that its product will help make « America, the strongest in the world, the strongest it has ever been » Palantir also pledged to not working with the Chinese government, a move the company acknowledges may restrict growth:

« Working with the Chinese Communist Party is incompatible with our culture and our mission, » the company wrote in its IPO filing « Our decision to avoid this large potential market may limit our growth prospects »

In the boldness of its expression, Palantir’s S-1 is a singular piece of corporate writing.But as the company seeks to draw marked black and white lines identifying who it will serve and who it will not. will not, the reality is rather obscure Currently, 60% of Palantir’s revenue comes from outside the United States, with private and public clients in the UK and France contributing to revenue growth.However, 34% of revenue come from ‘the rest of the world’, a Palantir category does not explode As political alliances become more and more shifting, it will be interesting to see how the company decides who is worth serving and who is not. is not

Palantir’s political activity applies not only to its global positioning, but also to the company’s domestic work A recent Buzzfeed News investigation revealed how the Los Angeles Police Department was trained to use the Gotham tool to track individuals by identifying characteristics such as race, gender, tattoos and scars, and through relationships with family and friends Since at least 2011, Palantir has been working with the Immigration and Customs Agency (ICE) To date, the company has received over $ 160 million from its work with ICE Although this work has yielded positive results in the past – including the weakening of the « Los Zetas » drug trafficking network – it has also aroused outrage

Under President Trump, the ICE acted more aggressively, arresting those who broke immigration laws Palantir’s Investigative Case Management System (ICM) – a software tool that stores personal information – was used by ICE in this context In some cases, migrant parents who brought their families across the border have been deported, resulting in the separation of parents and children

In response to this work, Palantir employees asked management to cancel contracts with the agency, but Karp refused to back down This decision contrasted with much of Big Tech: Google stopped work with the Pentagon after employees protested, and Microsoft changed its policies to allow employees to refuse to work on military projects If Trump wins a second term, we might see Palantir face further backlash for his work with the agency

Whether or not you find Palantir an attractive company will depend a lot on your political and ethical leanings There is no doubt that the company has built an impressive range of products and is making significant income with high contribution margins But Palantir is a company with an agenda: to uplift the West in a way specifically defined by the founders of the company Many may challenge both the partisanship of this vision and the narrow locus of control

Palantir Technologies, Peter Thiel, Alex Karp, Stock, Stephen Cohen

World News – CA – Demystifying Palantir: The Most Controversial Company To Go Public In 2020

SOURCE: https://www.w24news.com


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