Two technology companies, Palantir (NYSE 🙂 and Asana (NYSE :), each debuted in public markets Wednesday after using a non-traditional process – direct listing – to make an initial public offering (IPO) .
Through a traditional public offering, private companies issue shares that can be purchased by the public to raise capital for the company. With a direct listing, existing shareholders can sell their shares, but the company is not raising money. Therefore, only a small number of companies are willing to proceed with a direct listing instead of a traditional IPO. Companies that choose this method avoid the traditional IPO route, where executives are faced with investors to explain their business models and future growth potential through roadshows. Direct listings are also a cheaper way to go public.
To understand which newly listed company might be a better fit for your investment portfolio, here's a look at these two IPOs:
Palantir
Palantir, based in Denver, Colorado, is a data mining company whose software is used by government agencies and large corporations to collect, analyze, and map large data sets. Palantir's technology collects and combines ever-changing data streams into what it calls a single "source of truth" that its customers can then filter for meaning and use to make decisions.
Palantir 45 Minute Card
Palantir's customers include drug company Merck and United Airlines, who use the software to optimize flight routes. In contrast, the US government uses Palantir tools for tasks such as identifying roadside bombs in Afghanistan, catching tax fraud and, more controversially, locating people who have entered the US illegally.
Palantir said in a pre-listing filing that sales are projected to grow 42% this year to reach $ 1.06 billion. Sales increased 25% in 2019 to $ 742.6 million. For 2021, Palantir said it expects revenue growth of more than 30%.
With these promising growth figures, investors should note that Palantir never made a profit and that about a third of his revenues came from the three largest customers.
Because of its close ties with the US government and the CIA, some media outlets have questioned the nature of Palantir's tightly controlled corporate structure. The main target of this criticism is billionaire Peter Thiel, who founded Palantir 17 years ago.
According to a Bloomberg report:
"Thiel will have more control over the company than any other individual or investor group, and an unconventional voting structure will give Thiel and two other co-founders extra power forever."
As investors analyze Palantir's business model, an important question is whether the high level of trust in government contracts is a risk they feel comfortable with. Government contract revenues were $ 345.5 million, or 53% of total revenues in 2019.
In the filing, Palantir said that the U.S. government agencies using the software, the Department of Health and Human Services, Department of Homeland Security, the Securities and Exchange Commission, the Food and Drug Administration, the National Institutes of Health, the Centers to be. for Disease Control and Prevention, Department of Veterans Affairs, Army, Navy and Air Force.
Asana
Based in San Francisco, Asana provides job management tools to track team projects. Founded in 2008 by Dustin Moskovitz, a co-founder of Facebook (NASDAQ :), and Justin Rosenstein, a former Google (NASDAQ 🙂 product manager, it is also currently a loss-making entity, but with increasing sales.
Asana 45 Minute Chart
In its prospectus, Asana showed it suffered a net loss of $ 118.6 million on $ 142.6 million in revenue for the year ended January 31. A beneficiary of the coronavirus pandemic accelerated shift work, Asana reported 57% year-over-year sales growth for the three months ended July 31. The net loss for the period increased to $ 41.1 million from a loss of $ 15.6 million in the same period last year.
"We are well positioned to be a long-term leader in a multi-billion dollar market opportunity," Dustin Moskovitz, co-founder and CEO, said in an earnings release last week.
“Teams are central to everything we do. Now more than ever it is important for teams to operate with clarity, alignment and accountability. "
In its future guidelines, Asana forecasts revenue of $ 210.0 million to $ 213.0 million, representing year-over-year growth of 47% to 49%, and a non-GAAP operating loss of $ 140.0 million to $ 136.0 million.
Bottom Line
Both Palantir and Asana are backed by large-pocket investors with solid track records. That said, Palantir has a stable source of income through the government agencies as its main customers. On the other hand, Asana is likely to take advantage of the work-from-home environment where businesses need tools to track the performance of their remote workers.
Investors wishing to invest in these IPOs may consider dividing their position equally between the two stocks.
