Shares of Palantir Technologies Inc. (PLTR) have gone on quite a run since the stock’s debut on the NYSE at the end of September 2020. The company recently hit a daily high of $33.50/share, an impressive 235% increase in about 2 months. Palantir offers a software platform that helps public and private organizations gather, organize and interpret vast amounts of data. The company was awarded a number of lucrative government contracts, which no doubt helped propel the stock to new highs.
A search of PLTR on FloatChecker shows a public float of around 1 billion shares. Let’s examine the most recent Form 10-Q quarterly report filed on November 13, 2020 to see how the company’s shares are structured.
- Direct Listing of Shares – Classes
- 2020 Equity Incentive Plan – Options & RSUs
- Warrants and Growth Units
- Beneficial Ownership
Direct Listing of Shares – Classes
Palantir went public on September 30, 2020 through a direct listing, or direct private offering (DPO), rather than through a traditional initial public offering (IPO). Both methods make shares available for trading by the general public, but a DPO eliminates the need for middlemen like investment banks and underwriters that participate in an IPO. This can result in less costs and regulatory restrictions for the company.
As stated in the 10-Q, at the time of listing Palantir “authorized the issuance of a total of 20,000,000,000 shares of Class A common stock and 2,700,000,000 shares of Class B common stock, authorized 1,005,000 shares of a new class of common stock (“Class F common stock”) and 2,000,000,000 shares of undesignated preferred stock.”
It is not uncommon for companies to offer different classes of shares. Typically, the classes will grant the shareholders different voting rights, dividend payments, and priority to assets in the event the company goes bankrupt and is liquidated. The company can name the classes as they please, so long as they define the rights and obligations of each. In this case, the Class A shares of PLTR represent the common shares available to the public for trading and come with 1 voting right per share. The Class B shares grant their holders 10 votes per share. The Class F shares represent “Founder” shares and provide the Palantir founders with variable voting rights. The Class F shares are powerful in that they generally give the founders (Alexander Karp, Stephen Cohen, and Peter Thiel) the ability to control up to 49.99% of the total voting power of the company’s stock. The table below shows a breakdown of the shares outstanding:
2020 Equity Incentive Plan – Options & RSUs
In 2020 the company approved a new equity incentive plan that replaced an older plan from 2010. This type of plan provides for the grant of stock options, restricted stock units (RSUs) and performance awards to company employees. Palantir reserved 150 million shares of Class A common stock for issuance pursuant to the plan. Because those shares are reserved for employees, we will subtract them from the total outstanding shares to give us an initial float calculation of 1,576,685,755 shares (1,726,685,755 – 150,000,000).
The table below shows the balance of outstanding shares of options as of the time of the filing of the 10-Q. Stock options give the holder, such as an employee, the right to purchase the company stock in the future at a specified price (hopefully well below the trading price at the time of purchase). Based on the following table, there are 587,876,855 option shares outstanding. Subtracting that number from our prior calculation leaves us with a remaining float of 988,808,900 shares.
Palantir also has 199,655,233 outstanding RSUs. Like stock options, RSUs are a common way for companies to reward employees. But these shares are different than stock options in that they have no pre-set price. RSUs will typically vest after a specified period of time. Once that time has lapsed, the grant holder will receive the shares at the current trading price. Because these shares remain outstanding, we will subtract them from our running calculation: 988,808,900 – 199,655,233 = 789,153,667 shares in the float.
Warrants and Growth Units
Stock warrants are issued directly by a company to raise money. They generally have a time limit and exercise price or strike price. If the stock never trades above the exercise price, the warrant could expire worthless at the end of the time limit. According to the 10-Q, Palantir has 19,068,174 outstanding warrants to purchase common shares that are set to expire between December 2021 to January 2025.
Finally, the company has 3,582,674 shares of growth units which are set to convert into common shares within 180 days or 6 months of Palantir’s direct listing. These growth units appear to be both a performance-based and service-based form of equity compensation. Subtracting both the growth units and the share warrants from our prior total leaves us with a final calculation of 766,502,819 shares in the float.
We have not reviewed the beneficial owner information to determine share ownership and any related restrictions. Shareholders who own more than 5% of the stock of a publicly traded company are required to file a Schedule 13D report with the S.E.C. setting out the purpose of their investment. Likely due to the newness of the Palantir listing on the NYSE, there are currently no Schedule 13D filings in the S.E.C. Edgar database. But a number of prominent hedge funds have reportedly taken large positions in the company, including Point72 Asset Management, Third Point Management, Anchorage Capital Group, and Soros Fund Management. These shares may or may not be under certain sell restrictions. Soros Fund Management has reportedly sold shares that it was not legally or contractually obligated to hold due to disapproval of Palantir’s business practices. Beneficial owners may have an impact on the available float.
Our final float calculation of 766,502,819 shares is well below the results returned by the financial sites on FloatChecker. It was difficult to determine from the 10-Q how the different classes of shares were accounted for in the equity incentive plan, stock options, RSUs, etc. As a result we may have over included shares in our determination. Because Palantir is a relatively new public company, filings like quarterly and annual reports are limited. We can expect more information about the company going forward as updated filings are made with the S.E.C.