How Palantir Could Become the Breakout IPO Star of 2019

While Wall Street focuses on the initial public offerings of companies like Uber Technologies, Lyft and Slack, one less-hyped public debut may emerge as a star of the IPO world. Palantir, a Silicon Valley data analytics startup co-founded by venture capitalist and serial entrepreneur Peter Thiel, is valued at $20 billion and may be positioned for massive growth as it builds momentum in its niche market. The sixteen-year-old company, which provides tools for visualizing and making use of massive data sets with its proprietary software, is considering an IPO this year, according to several publications. Palantir could be looking at a valuation north of $41 billion as early as this year, per Business Insider.

Now, Palantir's value and outlook is set to soar on news that the company just won a U.S. military contract for worth up to $800 million, the first time the venture-backed firm has been named a "defense program of record," as detailed by CNBC. Programs of record are a title for the largest, most sought-after multi-year projects awarded by the Pentagon.

Palantir: What You Need to Know

  • Co-founded by Thiel in 2003
  • Provides tools for visualizing and making use of massive data sets with proprietary software
  • Services governmental, financial, healthcare, automotive, aerospace companies, etc.
  • Beat Raytheon for a $800 million defense program of record

Source: CNBC, Business Insider

Unique Management

Palantir’s co-founder, Thiel, has been an icon in the tech world for decades, as well as a controversial figure due to his outspoken views and political involvement as a supporter of Trump and an advisor to the current administration. The entrepreneur co-founded Palantir in 2003, and was the firm’s largest shareholder at its last round of funding in 2015, which valued the company at $20 billion. He was an early member of the “PayPal Mafia,” including big names like Tesla Inc. (TSLA) and SpaceX CEO Elon Musk, leading PayPal Holdings Co. (PYPL), a pioneer in the booming disruptive digital payments space. Thiel also sits on the board of directors at Facebook Inc. (FB), in which he was one of the earlier investors.

Palantir’s CEO Alex Karp, on the other hand, says the company almost went out of business a few times in its early days, largely due to his inexperience with Silicon Valley and inability to properly deal with venture capitalists. The once cash-strapped company had to pull the plug on its early products, taking a pivot to data security. When that product failed to generate excitement and funding, Palantir tried at a commercial product called Metropolis. Another failed attempt led Palantir to its first profit-making product, in which it has helped government’s around the world with operations including the investigation of terrorist attacks.

Silicon Valley Wins Against Legacy Defense Player

Palantir’s new "defense program of record" contract requires the company to develop an intelligence system to help soldiers in remote environments, called an Army Distributed Common Ground System, or a DCGS-A. The Palo Alto analytics company beat out rival Raytheon Company (RTN), an old guard defense contractor, marking a milestone for the Army in terms of who it chooses for its important contracts. The latest contract is significant for Palantir as it is a whopping four times larger than its $222 million contract with the Department of Defense's Special Operations Command (SOCOM).

Palantir's other customers have included major banks, government agencies, healthcare organizations, and manufacturers in the automotive and aerospace industries.

Despite positive tailwinds for Palantir, headwinds remain. For one, the software company is still losing money. The firm missed sales targets in 2018 after many contracts fell through, per the Wall Street Journal.

What’s Next

Ultimately, the big data startup, which has been called “secretive,” may serve as more of an attractive bet than the frenzy-causing LUPA companies, comprised of unicorns Lyft, Uber, Pinterest and Airbnb. Ride-hailing company Lyft is the first of the group to hit the public market, slated to price its shares after market close on Thursday. Some skeptics have warned against buying into these big names, given their lofty valuations, with Uber at an estimated $120 million, alongside mounting losses. Palantir, which differs from these players with its government and corporate clients, may face less risks in the realm of competition, consumer trends, and regulation. Meanwhile, as the company continues to win huge government contracts, the benefits of possessing the know-how that CIA and others want and need should outweigh downside drivers.

Take the Next Step to Invest
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.