Entities tied to Peter Thiel, the largest shareholder identified in Palantir’s filing, own more than 328 million shares.
Photo: Kiyoshi Ota/Bloomberg NewsPalantir Technologies Inc. has a message for investors awaiting the tech company’s long-anticipated stock listing: It has soured on Silicon Valley.
The money-losing, data-focused software company, which was once one of the world’s most valuable startups, launched a broadside against the tech sector as it unveiled paperwork Tuesday to take itself public through a direct listing slated for later this year—one that could come as soon as next month.
Chief Executive Alex Karp, who co-founded the company along with the billionaire investor Peter Thiel and others, spent much of an introductory letter lambasting the business models of other software companies and criticizing the tech giants of Silicon Valley for being out of touch with American principles and societal needs.
“Our society has effectively outsourced the building of software that makes our world possible to a small group of engineers in an isolated corner of the country,” Mr. Karp wrote. “The engineering elite of Silicon Valley may know more than most about building software. But they do not know more about how society should be organized or what justice requires.”
The letter was part of an apparent attempt by Palantir to set itself apart from other software firms, and to highlight its work for governments in the U.S. and its allies on security issues, including supplying software used by agencies that hunt for terrorists. The company—founded in the Bay Area in 2003—recently moved its headquarters to Denver. Mr. Karp said the company seems “to share fewer and fewer of the technology sector’s values and commitments.”
Palantir became one of the highest-valued startups when a 2015 funding round put its valuation at $20 billion. It has raised more than $3 billion from investors since it was founded.
Despite Palantir’s expression of cultural distance, its filing shows it shares numerous traits with Silicon Valley startups. The company is largely built on selling software to businesses and organizations—like the bulk of Silicon Valley companies that have recently filed to go public. Its founders hold outsize sway over the company and control half the votes of shareholders even if they sell some shares under a complex arrangement.
And, like many other highly valued tech companies before going public, Palantir has never made a profit.
The filing laid out financial figures sent last week to existing investors including a net loss of $579.6 million in 2019, about the same as in 2018. The first half of 2020 showed improvement, with a $164 million net loss, compared with a $274 million loss in the same period in 2019.
Palantir also has strong—and accelerating—growth. Revenue in the first half of 2020 increased 49% from the same period last year to $481 million. Revenue in all of 2019 totaled $743 million, which was up 25% from 2018.
The improvement comes as Palantir gradually started to look more like a Silicon Valley software company. For years it resisted hiring professional salespeople, but it now touts its sales force. And Palantir used to act more like a consulting company by customizing software, but now it is focused on easy-to-implement software.
Palantir has for years enjoyed a mystique given its work for the Central Intelligence Agency and other national security organizations. Work for governments brought in 53% of its business in 2019.
Its software helps search through and make sense of giant pools of data. In the case of terrorists, it helps establish links between people suspected of terrorism, while on the Fortune 500 level, its software has been used to help track car parts for Fiat Chrysler Automobiles NV and plane parts for Airbus SE.
Still, there are many challenges. Palantir appears to be spending heavily through paying employees with stock. Its $182 million in stock-based compensation expenses were over 50% of its revenue in the first half of 2020.
Investors, meanwhile, have pegged the company’s valuation well below its 2015 apex. Last year the company sold some preferred stock at a price nearly 40% lower than the $11.38 per share it reached in a 2015 investment. Mutual funds that own shares in Palantir have made even steeper markdowns.
The filings detail a complex arrangement between some of Palantir’s co-founders and the company, particularly Mr. Thiel, Palantir’s chairman. Entities tied to Mr. Thiel, the largest shareholder identified in the filing, own more than 328 million shares. And Mr. Thiel, Mr. Karp and Palantir President Stephen Cohen are also poised to stay in effective control of the company, as an unusual structure gives them just under 50% voting control even if they decrease their share holdings.
Mr. Karp—who got a $600,000 travel stipend in 2019—was recently given stock options for 141 million shares, 20% of which can be exercised if the company goes public.
Mr. Karp’s slam of Silicon Valley echoes themes laid out by Mr. Thiel, who in 2018 relocated to Los Angeles from San Francisco after growing disaffected by what he saw as the intolerant, left-leaning politics of the region.
In his letter, Mr. Karp held up Palantir’s work for the government as more valuable to society than the ad-driven business models of many tech companies.
“For many consumer internet companies, our thoughts and inclinations, behaviors and browsing habits, are the product for sale,” Mr. Karp wrote, without naming any other companies. “The slogans and marketing of many of the Valley’s largest technology firms attempt to obscure this simple fact.”
Mr. Karp added: “Americans will remain tolerant of the idiosyncrasies and excesses of the Valley only to the extent that technology companies are building something substantial that serves the public interest.”
Write to Eliot Brown at eliot.brown@wsj.com
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