Palantir shares were first sold to the public via an unusual direct listing on Wednesday
American tech company Palantir, known for providing government agencies with controversial data-browsing software, had a market value of nearly $ 22 billion (£ 17 billion) when it debuted on the New York Stock Exchange.
It's a high number for a company that has never made a profit, has privacy concerns, and relies on government agencies for nearly half of its business.
But the company, which takes its name from the "Seeing Stones," known for their power and corruption potential in Lord of the Rings, says the need for the kind of software it sells has "never been greater" .
Founded in 2003 with the support of right-wing libertarian technology investor Peter Thiel and the American Central Intelligence Agency (CIA), the company develops programs that integrate massive data sets and spit out connections and patterns in user-friendly formats.
The company – sometimes referred to as the "scariest" American tech giants – began working with US soldiers in Iraq and Afghanistan, but now supplies software to law enforcement agencies, other public agencies, and corporate clients.
It operates in more than 150 countries, including the UK, where it was one of the tech companies the government hired this spring to help respond to coronavirus.
- NHS uses tech giants to plan coronavirus response
- Who is Trump advisor Peter Thiel?
In the first half of 2020, Palantir's revenue grew 49% year over year to over $ 480 million (£ 373 million). On Wednesday's direct listing, when investors sold some of their existing shares to the public, the shares opened at $ 10 each – above the reference price of $ 7.25 – and were valued at around $ 22 billion.
Mark Cash, Morningstar's equity analyst who valued the company at $ 28 billion – even higher than Wednesday's valuation – said the company was well positioned in a growing industry.
"Data integration on this scale for the government is very complex and I think if you try to stop spending on it and it just goes away you are going to have some big problems," he said. "We think it's very difficult to turn away from a customer."
ICE and data protection protests
However, Palantir's rise has been overshadowed by concerns from privacy professionals that the company's tools allow monitoring and analysis of data – from driver's licenses and social media posts to DNA swabs – that circumvent and for people's right to privacy Abuse are ripe.
In the US, immigration authorities' use of its technology to assist undocumented immigrants has sparked violent protests, and in the UK, health data processed by the company has also raised the alarm.
Prior to the company's listing on the stock exchange, Amnesty International issued a report stating that the company failed to fulfill its responsibility as a company to protect human rights with insufficient care in the work for which it works.
Palantir's software is used by the US immigration authorities to find undocumented immigrants to be deported
"We need to move away from the idea that data analysis and data collection is objective or clean or immune to any pathologies currently playing out," said Paromita Shah, executive director of Just Futures Law, which focuses on Immigration Law.
"Our governments are the problem because they don't want to set up oversight, but Palantir is taking advantage of it."
"We have chosen sides"
Palantir told Amnesty that he had deliberately refused to work with border agencies in the US because of concerns.
The company has also vigorously defended its government work, claiming that its customers own and control the data. They say it has a team dealing with civil liberties, but it is up to the government to make the politics, not Silicon Valley's.
It has juxtaposed its engagement with some other tech firms like Google, who, following a response from staff, stopped working on an artificial intelligence project with the Pentagon.
"Our company was founded in Silicon Valley. However, we seem to share fewer and fewer values and obligations of the technology sector," wrote CEO Alex Karp on the file, announcing his plans to sell shares to the public. "We have chosen one side and know that our partners value our commitment."
The outspoken defense may not come as a surprise, given that it comes from a company co-founded by Mr. Thiel who is known to have left Silicon Valley in 2018 and deciphered its liberal politics.
Peter Thiel, co-founder of Palantir, helped Donald Trump's 2016 election campaign, although reportedly suspending that election cycle
Mr Thiel, whose estimated net worth of $ 2.1 billion was fueled by the sale of PayPal and an early investment in Facebook, funded the Hulk Hogan invasion of the privacy case that bankrupted gossip news site Gawker and generously made it available to conservative politicians .
In 2016, he donated more than $ 1 million to U.S. President Donald Trump despite reports that he is slated to suspend this election cycle.
In contrast, the managing director Alex Karp, who met Mr. Thiel when they both attended Stanford Law School, is a self-described neo-Marxist and "card-carrying progressive" with a doctorate in neoclassical social theory from a Goethe University in Germany.
According to Bloomberg, he displays Tai Chi swords in his offices. The company's presentation to investors this month opened with a video of him racing up a hill in orange training gear.
Prospective investors need to be "comfortable" with the company's executives – especially since, under the terms of the listing, they will continue to exercise oversized voting rights over the company even after ownership is moved to the public, said Mark Moerdler, senior research analyst at Bernstein Research.
Palantir boss Alex Karp prefers sportswear
His team recently warned in a note that the controversy could hurt the company's efforts to attract customers from the private sector.
"Politics has entered business in a way we've never seen it before, and you can see that big companies are being influenced in interesting ways by employees and others," Moerdler told the BBC. But he added, "I don't think this will fundamentally affect their ability to grow the business when the odds are as great as they believe."
Although Palantir is an American company, it employs more people in London – just under 600 – than in the Silicon Valley base or the headquarters in Denver.
This reflects both the work done for European clients like BP, Airbus and Ferrari, as well as the UK government contracts that were carried out several years before the coronavirus pandemic.
This included – according to a source – working with the GCHQ's cyber spies as well as publicly declared work for the Ministry of Defense.
Big data analytics may sound like a dry topic, but talk to the company's employees and they can speak passionately about a job they believe helped fight drug cartels, trap predators, and prevent terrorist attacks.
While seeking to highlight the life it saves, Palantir has also been accused by civil rights activists of "having blood on his hands". They are turning against his technology to identify places where illegal immigrants are working so the properties can be searched and those arrested can be deported.
In fact, the company has effectively become the boogeyman of surveillance technology.
Shareholders need to be aware that while many states and corporations will benefit from using their software, many are also interested in uncovering other controversies that they may be involved in.
Palantir financial outlook
How great these possibilities are remains to be seen.
While efforts to break into the corporate world were difficult at first, Palantir's trading business has grown. It now accounts for 53% of sales and includes customers such as French aircraft manufacturer Airbus and energy giant BP.
And Palantir said it was well placed to continue gaining government work thanks to a lawsuit against the U.S. military in 2016 that required the government to first consider commercially available products.
The company's finances have also improved in recent years as early financiers came under pressure to publicly list stocks and allow them to cash out.
Palantir recently relocated its headquarters from Silicon Valley to Colorado, where US military bases are located
In 2019, the company had sales of $ 743 million, up 25% over the previous year, with around 60% of sales coming from outside the United States.
But Palantir still posted a loss of nearly $ 580 million last year and relies on a relatively small number of customers for most of its sales.
The opening valuation of nearly $ 22 billion was only marginally higher than the $ 20 billion private investor who valued the company while raising funds five years ago.
And when Palantir started acting publicly, control only increased. This month, US liberal politicians, including MP Alexandria Ocasio-Cortez, asked financial regulators to investigate the company. The information they had made available to investors was not transparent about key areas of risk, including data protection and cooperation with foreign governments.
Growth will depend on closing new, big deals each year while keeping their profitable customers – and the company didn't say much about its record, Moerdler said.
"If they can make the product critical for a company, it can be sticky, but the road to get there is a long one," he said. "In terms of growth, it has yet to be proven."