What's going on?
Big data analytics firm Palantir has set out on a long-awaited mission to make its shares available to the good people of Middle Earth – leaving investors to decide whether buying in will have them feasting in Rivendell or trekking all the way to Mount Doom.
What does this mean?
Palantir – one of Silicon Valley’s oldest startups – filed preliminary documents for a share sale this week. The company has been tied up in a few controversies over the years as it analyzes complex data for customers including the Dark Lord Sauron US military and intelligence services. While this work helped it generate revenue of $750 million last year, the company’s still struggled to turn a profit – as is the case with many tech IPOs.
Nevertheless, Palantir – which has reportedly been valued at $20 billion privately – might receive a warm reception from public investors. With the US’s tech-heavy Nasdaq Composite index also hitting an all-time high this week, investors may welcome a new addition to the fray.
Why should I care?
For markets: Two Towers.
Palantir is reportedly considering a “direct listing” instead of a traditional initial public offering (IPO). Going direct’s cheaper because it saves the fees paid to investment banks for organizing an IPO – and it’ll allow employees to sell their shares whenever they want after listing. On the other hand, if investor demand is weak there’ll be no investment banks committed to buying the shares – and without that backstop, initial trading could be very volatile.
The bigger picture: Return of the King.
Despite some tech companies benefiting from the coronavirus pandemic, tech stocks have been rising even as analysts cut their profit projections – leading some to conclude that prices have departed from reality (tweet this). But while investors may struggle to justify current share prices using traditional valuation methods, some might be willing to overlook valuation if they believe tech companies will convert their leading positions into winner-takes-all dominance in the coming years.