Valued around $10.5 billion ahead of direct listing

As Palantir gears up for its stock market debut, the company has a long way to go to convince potential shareholders that it’s worth the $20 billion price tag that investors gave it almost five years ago. Palantir held a virtual event for investors on Wednesday. The company, whose software helps government agencies and large corporations make sense of vast amounts of data, also released an updated prospectus, indicating that the number of shares outstanding increased in the third quarter, to 1.64 billion from 1.53 billion in the prior period.

Based on an average share price transaction in the latest quarter of $6.45, investors are valuing the company at just over $10.5 billion.

In July, Palantir raised $410.5 million by selling shares at $4.75 a piece, according to the filing, which comes out to a valuation of about $7.8 billion. Transactions during the quarter took place at anywhere from $4.17 a share to $11.50 a share, suggesting a range of $6.83 billion to $18.8 billion.

The math gets even fuzzier when considering that Palantir had a reported valuation of $20.4 billion in 2015, when the share price was $11.38. That price, based on the supplied share count as of Sept. 1, would indicate a current valuation of $18.6 billion.

What’s clear is that most investors see a company that’s worth closer to $10 billion than $20 billion. If Palantir’s direct listing values it at around the average private market price, the stock will trade at about 10 times revenue, a healthy ratio but less than one-fourth the price-to-sales multiple for companies like Zoom, Datadog, Shopify and Zscaler.

In the first half of 2020, Palantir’s total revenue jumped 49% to $481.2 million, with just over half its sales coming from government customers. Costs for sales and marketing and research and development dropped, allowing Palantir to narrow its net loss to $164.7 million from $280.5 million.

But Palantir remains a very expensive product that hardly anyone uses — the opposite of Zoom or Slack. It’s not an easy-to-use application that employees try out with a small team and then convince their colleagues to adopt. Rather, Palantir describes its technology as the “central operating system” that companies use for their data.