Breakingviews - Palantir float marks peak investor apathy

The logo of U.S. software company Palantir Technologies is seen in Davos, Switzerland Januar 22, 2020. REUTERS/Arnd Wiegmann

NEW YORK (Reuters Breakingviews) - Shareholder democracy is a nebulous concept. With Palantir Technologies, though, it’s a non-issue: there isn’t any. The data-analytics company is setting a starting-point valuation of about $20 billion for its direct listing next week. Would-be shareholders need to square their own assessments with the near certainty they will be ignored.

Company founders with supervoting rights, far out of proportion to their economic interests, wield control at companies from Alphabet to Zoom Video Communications. But Palantir is extreme. Its so-called Class F shares with variable votes will ensure founders Alexander Karp, Stephen Cohen and Peter Thiel have voting power at least equal to 49.999999% – an exact figure quoted 41 times in the latest draft prospectus – even if they dramatically reduce their shareholdings.

Entrenched founders are often seen as beneficial until they become problematic. WeWork’s disastrous attempt at an initial public offering last year is a prime example, but case studies also include Rupert Murdoch at News Corp and Mark Zuckerberg at Facebook. In Palantir’s case, the scorn for outside investors is more obvious than usual. A quickly superseded version of the prospectus published on Monday revealed a plan that would have given them the additional right to “unilaterally adjust their total voting power.”

Palantir’s triumvirate has eschewed a traditional IPO, opting instead for a direct listing where existing shares simply start trading with no valuation hints from an underwritten offering. Morningstar has estimated a market capitalization of $28 billion, a significant premium to private-market transactions on Sept. 1, per Palantir’s prospectus.

Ignoring the company’s modest debt, Morningstar’s price tag would amount to an eye-watering 27 times Palantir’s latest estimate of this year’s sales. That’s far higher than, say, Facebook, or even plant-based food upstart Beyond Meat, though it’s shy of Zoom’s still headier multiple. The optimistic scenario is a continuation of recent rapid top-line growth in Palantir’s government and commercial businesses, with profitability improving as economies of scale kick in.

But what if the company falls back to the lower-growth, money-losing path it has followed for most of its 17 years? In that case, investors will have no power to intervene. They could insist on a discount to reflect Palantir’s poor governance. If other IPOs with similar, if less extreme, structures are a guide, they probably won’t.


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