Silicon Valley’s most “private” company may not be so private anymore.
Palantir, the secretive big data firm initially backed by the CIA, is about to go public this Wednesday.
The company’s co-founder is Peter Thiel, one of the biggest tech investors on the planet.
It’s yet another of a series of software companies, including Snowflake (SNOW), JFrog (FROG), and Sumo Logic (SUMO), to go public in the recent weeks.
But unlike all those other geeky, flip-flops-to-work startups, there’s a more controversial aspect to Palantir.
According to Palantir’s CEO, Alex Karp, it’s tech is used “on occasion” to kill people.
That’s because the company has not only won some very lucrative contracts from companies, but from western governments around the world.
So in a lot of ways, Palantir exists more as a defense contractor like Lockheed Martin (LMT).
I mean, you just can’t imagine one of Karp’s Silicon Valley colleagues— say Tim Cook— saying a thing like that.
But that’s not the only unconventional thing about Palantir— the company is pursuing a direct listing instead of an IPO.
It’s a process that’s a whole lot quicker and involves less scrutiny, since companies just sell existing shares rather than raising new capital.
No matter what way you slice it though, it’s going to be an unusual IPO for sure— so let’s dig in.
We’ll Never Know Exactly What Palantir Does, But Here’s the Gist
An early investor in Palantir was the CIA.
In fact, the technology was apparently used to help track down Osama bin Laden, as well as a host of other terrorists in Afghanistan and Iraq.
Additionally, Palantir helps the Immigration and Customs Enforcement agency (ICE) locate illegal immigrants.
So, as you can imagine, there’s a lot of controversy around Palantir.
But Palantir also supports a number of humanitarian efforts.
That includes exposing human trafficking rings, locating exploited children, and solving complex financial crimes.
How exactly does Palantir do it?
Put simply, Plantir provides software capable of sifting through massive troves of data.
That could include anything from cell phone records to airline reservations to social media files.
Basically, Palantir takes all internal data from companies and governments and combines it with external sources of data.
That allows Palantir to create a more intuitive platform for better data visualization, a greater understanding of links between those data sets, and a better archiving of overall data.
The two core products that help Palantir achieve this are Fotham and Foundry.
What the Numbers Are Saying about Palantir
No doubt, the numbers behind Palantir are about to make a big splash.
The trading debut will give the company valuation of around $22 billion dollars.
That’s in large part because of the tremendous scope of the company— they have 125 customers in 36 industries, across over 150 countries.
As a company offers software for data analytics, they’re getting a whole lot of business from both new and old companies.
Although they do not sell their software to geopolitical opponents of the US, the US government remains a huge global customer.
However, as is the case with almost every tech IPO that hits the market these days, Palantir is currently losing money.
The company lost $165 million in the first two quarters of 2020, which is nevertheless an improvement from 2019 when the loss was $588 million.
A large part of these losses came from executive compensation, which traditionally is regarded as a red flag for investors due to the dilutive nature of this cost.
Even after the direct listing, the unique share structure (Class A, Class B and Class F) will allow the key 3 executives to retain majority control over the company, which could negatively impact the company over the long haul.
However, the company has been rumored to go public for a long time, so there could be a huge amount of pent-up demand right from the get-go.
How I’m Trading Palantir (PLTR)
Now that we are familiar with the basic fundamentals of this company, let’s jump to the part we’ve all been waiting for.
I would like to outline my trading plan for the opening of trading for Palantir.
Shares are expected to start trading around $10 with the ticker PLTR.
I will be open minded to trading this stock both long and short.
Although I am less likely to buy the opening print, allow me to elaborate on my two potential plans for both long and short sides.
The scenarios I am considering to get long:
The stock holds a level for more than 30 minutes, preferably above the opening price.
The stock opens weak but is unable to go down further, in which case I would also consider this as a sign of strength and look for consolidation to get long. My stop would be below the consolidation low and target would be dictated by the price action.
The stock closes at highs, in which case I would consider taking the long overnight
The scenario I am considering for a short trade:
The stock opens and immediately rips higher, but stalls and comes right back down through the opening price. To me, that would indicate overwhelming supply. And given the absence of underwriters to support the price, I would short with an absolute stop at high of day.
Remember, these are just rough guides.
Although I will keep these scenarios at the back of my mind, I will wait for signs and confirmation without jumping the gun when PLTR goes live on Wednesday.
To learn the strategies I’m using to potentially trade PLTR, check out my latest IPO trading workshop here.