Breakingviews: Palantir mystery extends to public-market value

Palantir Technologies, the data-analytics firm co-founded by investor Peter Thiel in 2003, has filed to go public, it said on Monday. The company hasn’t shied away from helping governments track suspected terrorists and illegal immigrants, along with other controversial and mysterious law-enforcement business. It was valued at $20 billion in a private funding round in 2015. Achieving a similar mark on public markets looks optimistic. What it is eventually worth depends on investors believing that a recent acceleration of growth is durable.

The company had about $700 million of revenue last year, according to Reuters sources – Palantir’s financials are still confidential for now. Helped by governments desperate to track and make sense of the coronavirus pandemic, top-line growth has perked up. The firm expects about $1 billion of revenue this year and perhaps $1.5 billion in 2021, according to Reuters.

Markets are receptive right now to initial public offerings and, probably, to direct listings if that’s what Palantir opts for. Renaissance Capital’s IPO index has returned 36% in the year to date, and software plays are among the hottest performers. Splunk, another analytics firm, is expected to grow about 3% this year, according to Refinitiv data. Yet it’s valued at 12 times estimated revenue over the next 12 months. MongoDB, a database firm with 25% estimated growth, is valued at 22 times estimated sales.

That could help Palantir stretch towards its 2015 private value. Yet it’s worth asking whether investors’ enthusiasm will last, and whether growth will slow. Even giants like Microsoft and Google parent Alphabet have seen their stock prices surge over 12 months, and smaller companies like Zoom Video Communications have done far better. With the real economy lagging, software valuations may be baking in growth that will not arrive for years.

Moreover, Palantir gets about half its revenue from government contracts, according to a CNBC interview with Chief Executive Alex Karp earlier this year. A Democratic win in November’s U.S. presidential election could mean reductions in the defense budget and perhaps Palantir’s prospects.

Karp’s company has taken 17 years to close in on $1 billion of annual revenue. Alphabet and Facebook did it in about a third of the time. Perhaps Palantir’s historic slower pace of growth is what’s sustainable. That might spook potential investors.

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