Initiating Coverage of Palantir With a $13 FVE

We are initiating coverage of Palantir Technologies PLTR with a $13 fair value estimate, equivalent to a $28 billion market capitalization (assuming 2.17 billion shares), along with narrow-moat and positive-moat trend ratings. Palantir is becoming publicly traded through its direct listing on Sept. 30 that will make 20% of its shares available on the first day of trading. Without having underwriters and avoiding a book-building process, the company's shares could experience profound volatility. Based on S-1 filings, its valuation has fluctuated in the private markets, from less than $7 billion in mid-2020 to a high beyond $24 billion in August, and the latest trading day in September indicated a $20 billion valuation. If valuation remains in the $20 billion range, we believe investors have an opportunity to capture upside on this pioneer in big data integration and analytics.

In our view, Palantir is well suited to help organizations consolidate and harness the power of the data generated. Palantir sells two software platforms aimed at solving big data integration and analytics challenges for government and commercial clients. We believe its software becomes mission critical to organizations, creating resilient customer switching costs. Additionally, we opine that Palantir benefits from unique intangible assets developed into its offerings, and a network effect from its software becoming more useful as more companies and users join the network.

Between a leading position in the government sector with the U.S. and its allies and the opportunity for Palantir to expand into commercial enterprise applications, we think the company is poised for robust growth and margin expansion in the years ahead. We believe a robust growth trajectory comes from new commercial ventures on top of a strongly expanding government base, and that installation efficiencies and the strategic shift toward a SaaS model will be conducive to margin expansion throughout the 2020s.

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