A Palantir IPO is filed with the SEC. After more than a year of anticipation, investors are finally getting Palantir stock. It’s a Silicon Valley company, and it’s highly valued.

But is Palantir a good investment opportunity? Here’s what we know…

Palantir IPO: The Business

A Palantir IPO is finally hitting the market after over a year of rumors about the high tech company.

Billionaire Peter Thiel and CEO Alex Karp founded Palantir in 2003. It’s an American software company specializing in big data analytics. Palantir’s software manages, analyzes and secures data. It finds useful patterns showing hidden connections within data, including phone records, addresses and credit transactions. And as the world has become more connected, the demand for Palantir software has gotten higher.

Palantir originally worked only with governments. But in recent years, Palantir branched out to work with businesses. In December 2019, Palantir announced a contract with the U.S. Army. It will be a four-year program totaling $440 million. The company also claims it aided in the capture of Al Qaeda leader Osama bin Laden.

Palantir is what investors call a unicorn. Unicorns are privately held companies with a value of $1 billion or more. And Palantir IPO rumors have been around for more than a year. But why did the company delay Palantir stock?

Palantir Delays Going Public

Palantir delayed for a few reasons. One thing to note is the large failures of prominent 2019 IPOs like Uber (NYSE: UBER) , Lyft (Nasdaq: LYFT) and Peloton (Nasdaq: PTON). In fact, before the coronavirus market crash, almost half of all 2019 IPOs were below their offer price. And Palantir wasn’t alone in the decision. WeWork  also postponed its IPO.

Moreover, in 2015, Palantir gained a value of $20 billion. In 2020, Palantir Technologies wanted to reach a value of $26 billion. The company turned to foreign investors to raise an additional $1 billion to $3 billion in funding. Delaying the Palantir IPO gave the company time to reach out to other venture capital investors.

Another issue is the ethical use of its technology. Palantir’s software aids Immigration and Customs Enforcement. In the past, employees spoke up against the involvement in immigration policy enforcement.

But CEO Alex Karp made his position very clear in a letter in Palantir’s prospectus.

Alex Karp Confronts Silicon Valley

Karp addressed some issues in his letter. And one of them was the use of Palantir’s technology and the questions that come with it. But it turns out Palantir’s employees aren’t the only one with questions. Karp said:

The construction of software platforms that enable more effective surveillance by the state of its adversaries or that assist soldiers in executing attacks raises countless issues, involving the points of tension and tradeoffs between our collective security and individual privacy, the power of machines, and the types of lives we both want to and should lead. The ethical challenges that arise are constant and unrelenting… 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.

And he goeswent on to address it further. Palantir plans to relocate its headquarters to Denver, Colorado. And Karp made his feelings toward the Valley very clear as he put unnamed companies under fire:

Our company was founded in Silicon Valley. But we seem to share fewer and fewer of the technology sector’s values and commitments. From the start, we have repeatedly turned down opportunities to sell, collect, or mine data. Other technology companies, including some of the largest in the world, have built their entire businesses on doing just that. Software projects with our nation’s defense and intelligence agencies, whose missions are to keep us safe, have become controversial, while companies built on advertising dollars are commonplace. For many consumer internet companies, our thoughts and inclinations, behaviors and browsing habits, are the product for sale. The slogans and marketing of many of the Valley’s largest technology firms attempt to obscure this simple fact.

Many investors and analysts took interest in Karp’s letter due to its strong implications against the moral and ethical standards in Silicon Valley. But it does lead to a big issue investors interested in Palantir stock have with the unicorn…

Palantir Stock: Financials Expose Unprofitability

Despite its government contracts, Palantir never made a profit. Investors were aware of this before the company’s filing made it a public fact, though.

In 2018, revenue was $595.4 million. And it increased by 24.7%, to $742.5 million, in 2019, putting the company closer to its goal of $1 billion in revenue. Palantir also saw an increase in revenue from the six months ended June 30, 2019 to the same period in 2020. Revenue increased 49%, from $322.7 million to $481.2 million.

But although revenue increased, so did expenses. In 2018, operating expenses totaled $1.05 billion. They increased to $1.08 billion in 2019, a growth of 2.2%. And for the six months ended June 30, they increased 2.3%. Fortunately, revenue outpaced expenses.

As a result, Palantir’s net loss is declining, putting it on the path to turning to profit. The fiscal years 2018 and 2019 saw similar net losses of $580 million and $579.6 million. But Palantir’s six-month figures highlight its promise. Net loss went from $280.5 million in 2019 to $164.7 million in 2020.

Although Palantir is on the right path, the risk that it may never be profitable is a concern for some investors.

If you’re interested in Palantir stock, there’s a big piece of information about the Palantir IPO you need to know.

Palantir IPO Will Come via Direct Listing

Palantir doesn’t plan to go public with a traditional IPO. Instead, the company plans to do a direct listing. This means no new shares will be issued. Current stockholders will instead sell their Class A shares, if they choose to. Direct listings are a cheaper and faster method of going public. However, they also create more risk for investors.

Palantir Technologies will trade on the NYSE under the ticker symbol PLTR.

If you’re looking for investment opportunities, Investment U is the place to be. Sign up for our free e-letter below! It’s full of useful tips and research from our experts. Whether you’re a beginner or an experienced investor, there’s something for everyone.

The Palantir IPO is one of the most anticipated of the year. But investors should study the company’s prospectus before making a decision about investing in Palantir stock.