This morning, we released exclusive leaked details about Palantir's long-awaited S-1 statement, including the company's revenue, margins, operational loss, and the breakdown of government / commercial contracts.
However, one aspect that we didn't cover much was the actual process the company intends to use to float its shares on the stock exchange. Rumors have been circulating for weeks that the company intends to pursue a direct listing, probably targeting mid-late September.
Direct listings differ from the standard IPO process in that there are no new shares being offered to the public, the company does not raise funds, and typically, employees and insiders have no lockout periods. The blocking period in a typical IPO is around six months, although it can be a year or more in special cases. Since there are no new shares and no freezes, trades after a direct quote are literally all the shares offered for sale by insiders.
This can lead to volatility, and that volatility is one of the reasons some companies have been reluctant to go the direct listing route: without lockdowns, employees and venture capitalists could theoretically dump their shares quickly, snatching the shares straight out of the gate and damaging the perception of its long-term value.
For strong companies, however, openness to everyone makes sense. For example, when Spotify ran its direct listing in early 2018, the company didn't have a lockout period for its insiders except for one large shareholder (Tencent). Likewise, Slack, which pursued a direct listing in mid-2019, had no block. Both companies have performed admirably since their public debut.
However, according to multiple sources who have seen his prospectus documents, Palantir intends to have a blocking period on his shares. A source confirmed that the company will pursue a direct listing, although we have not been able to verify this with multiple sources.
The combination of a direct list and a blocking period would be new and represent a departure from the more employee-friendly tactics that have been pioneered by Slack and Spotify.
The freeze will almost certainly help stabilize Palantir's stock after its debut, which will be less volatile as insiders won't be able to trade their shares. However, it's definitely not a vote of confidence that a 17-year-old company feels it needs to control the sales decisions of its workforce and investors to keep its share price on public markets.
As before, the company's S-1 is clearly in sight and we will have more details on the spec when official documents are filed with the SEC.
