Should You Buy Palantir’s Direct Listing?

Palantir (PLTR), one of the most fascinating and controversial companies in recent history, is going public today through a direct listing…

The company is named after the “palantiri,” which are seeing stones in the “Lord of the Ring” trilogy. In the books, these allowed the characters to see across the whole universe and through time.

Palantir (PLTR) is hoping to accomplish the same with its algorithms and data-ming technology. It was founded after 9/11 during the “War on Terror” to stop terrorist attacks or other national security threats.

The company was started by Peter Thiel, soon after he sold Paypal (PYPL) to eBay (EBAY) for $1.5 billion. At Paypal, they had developed a highly effective fraud detection algorithm for financial transactions which he wanted to apply to detect other sorts of threats.

Thiel remains the Chairman of Palantir, and his involvement is sure to generate interest, since he is known for his successful investments in companies like Facebook (FB), Spotify (SPOT ), and Lyft (LYFT). In addition to starting PYPL, he is known as a thought leader in Silicon Valley and has been outspoken about his political beliefs.

Some of these beliefs have certainly filtered down to Palantir. In its S-1, the company states, “We have chosen sides, and we know that our partners value our commitment. We stand by them when it is convenient, and when it is not.”

This statement is a rejoinder to critics in Silicon Valley who don’t approve of the company’s work with places like intelligence agencies, immigration enforcement, defense companies, and the Department of Defense. It’s also a message to his partners that Palantir will not be swayed by public opinion.

However, the company’s intent was very clear with its first major venture backer – the CIA’s venture arm, In-Q-Tel.

It worked with the agency to train and develop its analytics engine. Reportedly, the company’s software was instrumental in helping to locate Osama bin Laden in 2011. As a result, the company began getting contracts from police departments, foreign governments, military branches, and intelligence agencies.

Direct Listing

Palantir’s trading debut is unusual for a couple of reasons. It’s going public through a direct listing which means that the company will save costs in terms of underwriting and not having to do an IPO roadshow. It also means that there will be less constraint on the supply of shares and no source of demand generation.

Spotify (SPOT) and Slack Technologies (WORK) are the two most recent, high-profile companies which have gone public through this route. Both saw tepid reactions in their stock prices in their initial months of trading, however, these stocks have started outperforming in recent months.  In traditional IPOs, the underwriters generate demand and keep supply limited which is supportive of the price during the first, few months of trading.

It’s expected that Palantir will start trading at…

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