(Bloomberg) — A listing date that moved twice, a company known for parsing data that couldn’t find some of its own shareholders, and a complicated twist on an already unfamiliar route to market. Palantir Technologies Inc.’s direct listing had everything –- and left some shareholders wondering whether the 17-year-old company was really ready to go public.Palantir started trading Wednesday, choosing to run a seldom-tested direct listing process instead of a traditional initial public offering. The stock closed Friday at $9.20, below the $10 per share it opened at on the New York Stock Exchange, giving the company a market valuation of $15.2 billion.On a fully diluted basis, including all classes of shares and employee stock options, Palantir is valued at $20.2 billion.Just days into the secretive big data firm’s journey as a public company, some shareholders have privately expressed frustration about the process, with accusations of technical glitches, misplaced records and disorganization that left some investors with an inability to sell shares.Bloomberg News spoke to about a dozen investors, most of whom asked not to be identified as the details are private. Palantir declined to comment for this article.Palantir’s first day of trading was short but eventful, starting at 1:38 pm Wednesday in New York with a little over two hours to go before the market closed. The company’s long and complicated shareholder roster slowed the opening of trading, people familiar with the matter said. The price setting process is overseen by a market maker — in this case Citadel Securities — which matches buy and sell orders to establish an opening price, in consultation with lead adviser Morgan Stanley and NYSE. While Palantir had tried to clean up its capital table in the months leading up to the listing, it wasn’t enough when it came to confirming data on thousands of private investors during the price discovery process.Joe Mecane, head of execution services at Citadel, said in a Bloomberg Television interview that a direct listing will naturally open later than an IPO, because the price is being set on the morning of the listing rather than the night before.When the shares did open, they started trading at $10 apiece — below the price at which the stock changed hands in some recent private transactions — and ended the session even lower.“This did not work out for me the way I wanted,” said Michael Iavarone, an investment adviser at PHX Financial said. He added that the current valuation of his Palantir shares is below what he paid on the private market in 2015.Iavarone is hopeful the stock performance will improve. “I have to adjust my runway, but I still believe in these guys. I see this as the first inning.”Some shareholders expressed relief that Palantir is now public and said they were happy with how the listing went, particularly because trading hasn’t been volatile. Three people familiar with the deal said that Palantir holding stable around a $20 billion valuation is a good outcome, considering the supply of shares that is now available on the open market compared to a regular IPO, when more shares would be locked up for longer.Privately OvervaluedAs recently as this year, Palantir’s shares were fetching as much as $11.50 apiece in secondary transactions, but also changed hands for as low as $4.17 each, filings showed. Palantir co-founder and shareholder Joe Lonsdale told Bloomberg TV that Palantir should have been valued at $8 billion to $10 billion in its last private round five years ago, not the $20 billion value it was awarded.The long list of investors, dating back as far as 2003 when the company was founded by Silicon Valley entrepreneurs including Peter Thiel, also posed a separate problem. Palantir, which famously helped the U.S. Central Intelligence Agency track down Osama bin Laden, had trouble locating some of its own shareholders in the run-up to the listing, some of the people familiar with the process said.Like Uber Technologies Inc., which took out an ad in a newspaper to reach its investors, Palantir had to try to reach former employees and early investors before it went public. But unlike Uber, which opted for an IPO, Palantir’s investors were permitted by the direct listing format to sell some of the shares on day one. Some investors said Palantir was disorganized in how it dealt with its shareholders ahead of the direct listing, an event that many are still not that familiar with.Palantir’s lead adviser, Morgan Stanley, also acknowledged it had problems with Shareworks, a platform that handles current and former employee stock holdings, during the listing.“We experienced slowness that may have resulted in delayed logins into our system,” a Morgan Stanley Shareworks spokeswoman said, adding that its call centers were open at all times to execute trades. “We will work through any issue that is brought to our attention and ensure that no employee will be disadvantaged.” CNBC first reported on the issues with Morgan Stanley’s software.Eric Munson, a Palantir investor through his firm Adit Ventures, is also a Morgan Stanley shareholder and former employee. He said he had a good experience with his Morgan Stanley broker when he bought more Palantir shares Wednesday, but was disappointed overall by how the listing went. “I give them a C. I give them a passing grade because they got the deal done. I don’t think it went particularly well operationally.”Some investors also found that their records were missing when they tried to log on to register with another third-party provider, Computershare Ltd., the people said.A spokeswoman for Computershare said that “there were no issues with our systems during this process and that we followed correct processes throughout.”One of the ways the direct listing process differs from a standard initial public offering is the advising banks do not set the price of the shares that set the initial valuation. Instead, a live auction on the morning of the listing determines the opening price.Shared SpotlightComplicating matters was Palantir’s debut date, which was pushed back twice and meant that the company had to share both the spotlight and resources. Until this week, just two large companies — Spotify Technology SA and Slack Technologies Inc. — had gone public through a direct listing. That count doubled Wednesday, with the addition of Palantir and Asana Inc., which had already picked the same day and used the same teams at the New York Stock Exchange, Citadel Securities and Morgan Stanley.Asana, which opened at $27 more than an hour before Palantir, ended that first day higher. It’s now slipped below that price to end Friday at $25.91.Palantir investors were also subject to a lockup period with its direct listing, a modification that made it more like a traditional IPO. Shareholders were limited to offloading a maximum of 20% of their holdings, with the other 80% available to sell early next year after the company reports its 2020 results.Palantir Chief Executive Officer Alex Karp described the lockup as a decision made “during the fog of war” referring to the monthlong period when the company hustled to go public. Karp, who spoke by phone from Munich after the market closed Wednesday, said investors don’t yet appreciate the full value Palantir’s software provides, but will in a few years. He said other factors, including accelerating gross margins and Palantir’s tight relationship with the U.S. government, are also underappreciated.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.,
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