- As a big data analytics vendor, Palantir is one of the hottest private companies that are speculated to go public soon.
- Palantir generates revenues from analyzing big data in the intelligence, defense, and finance sectors.
- The company is growing quickly, and a Palantir IPO that will include core business or only the finance product line presents an intriguing opportunity to join this booming company.
Palantir Technologies is a data analytics software provider, founded by former PayPal executive Peter Thiel along with Alex Karp and three others, which develops data analytics capabilities that address fraud prevention, counter-terrorism actions, and other intelligence tasks. As part of the U.S. intelligence community that invests in newly developed technologies which could be used in defense operations, CIA’s venture firm In-Q-Tel was one of the early investors in Palantir.
Palantir’s customer list includes some federal agencies and departments, such as the Defense Department, CIA, FBI, Homeland Security, and NSA. Palantir’s software aggregates structured and unstructured data from all the defense and intelligence arms and helps the U.S. law enforcement connect the dots between separate incidents that may sum up a bigger event. Moreover, all law enforcement arms collect tons of digital information that, if combined and analyzed together, could produce a result that makes the data more valuable together than apart. Data gathered by the FBI, for example, can be used to trigger an alert for CIA activity, and NSA data could be used to build the profile of a suspect that could be shared quickly with the other agencies. Palantir became publicly known for its part in prosecuting Bernie Madoff and finding Osama Bin Laden.
Palantir operates under two product lines: Gotham and Metropolis. Palantir Gotham is a data analytics and visualization tool that collects data from various resources and allows intelligence analysts from different organizations to seamlessly, securely, and collaboratively analyze the same data, explore divergent lines of reasoning, record each step along the way, and share their insights without losing their knowledge base.
Palantir Metropolis is a data analytics and visualization tool used in large-scale quantitative investigations in the finance and insurance sectors by tracking and analyzing insurance claims data, measuring network traffic flow, and anticipating financial trading patterns.
Palantir is a private company and keeps all of its financial information confidential. A fairly accurate revenue estimation can be created based on publications in the open media, as well as the company’s announcements, events, interviews, etc. According to my estimations, Palantir generated almost $600M in revenues in 2014 and had an impressive 5-year CAGR of 84%. As shown in chart 1 below, Palantir’s revenue multiple has grown with the revenue line and as of 2014, Palantir has a P/S ratio of 26 which is higher than other pure-play big data players like Splunk (NASDAQ:SPLK) that has a P/S ratio of 18, Qlik Technologies (NASDAQ:QLIK) with 6 and Tableau (NYSE:DATA) with 20.
The higher P/S ratio could express not only the high valuation of Palantir in the recent funding rounds but also the high expectations investors have for the company. Palantir operates in one of the fastest growing industries - big data analytics coupled with intelligence and anti-terrorism specialization -- making Palantir a hot business in the private markets these days.
Palantir Technologies IPO: Funding and Valuation
Palantir raised $1.2B in 11 equity and debt funding rounds between September 2005 and December 2014. Though its CEO, Alex Karp, mentioned that going public will interfere with the company’s nature, Palantir is usually included in potential hot IPOs lists. As Palantir has a large confidential operation that supports the world’s most delicate topics, I believe Palantir will re-structure and spin-off some of its operations to enable an IPO of a portion of the current company to satisfy investors and raise additional funds. Palantir could spin off its government-related activity under the Gotham product line and keep it in a private company, while Palantir's finance-related business under the Metropolis product line could go public.
As shown in chart 2 below, Palantir grew from a company worth a few million dollars to a $15 billion company in nine years while Palantir stock (preferred stock price) increased significantly, up to $14.82 in December 2014.
If 75% of Palantir’s revenues are generated by the Gotham product line, this leaves the Metropolis product line with annual revenues of $145M in 2014 and around $3.8B valuation with a 26 revenue multiple. Palantir Metropolis as a standalone company could compete fiercely with the big data analytics giants and the different segment leaders. Either scenario—Palantir spinning off its government-related activity and going public with the rest of the company, or the company launching an IPO as it is today (which is unlikely)—will represent an attractive opportunity for investors to join this rapidly growing company when demand for its services is increasing. Once there are new developments, I will revisit my investment thesis.
Data analytics company Palantir has been repeatedly named as one of the hottest IPO's. The company generates most of its revenues from its intelligence and law enforcement solutions, while the rest is generated from a finance/insurance solution. Palantir made almost $600M in 2014, displaying an impressive 5 year CAGR of 84%. The $15B company is likely to go public soon as it has gone through 11 funding rounds; however, its confidential activity may push the company to spin off part of its business and IPO the rest. In any scenario, Palantir Technologies IPO will present an attractive investment.
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