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Palantir’s COO says it was a 'luxury' being a private company

After the company's direct listing fizzled out, COO Shyam Sankar says he's "maniacally and monastically" focused on creating value.

Palantir

The debut marked the end of a somewhat turbulent listing process.

Image: Protocol

Palantir might be one of the most talked-about companies in tech, but upon its listing Wednesday, investors didn't seem too interested. Though its stock opened at $10 per share, it spent the day slipping, closing down more than 5% at $9.50.

"I'm trying to realize how much of a luxury it really was [being private], of not looking at the stock price on a daily basis," COO Shyam Sankar told Protocol after he was informed of the slip, adding that he would be "maniacally and monastically [focused] on creating long-term value."

The listing was beset by other issues, too. Insiders, who were already hampered from selling all their shares in the direct listing thanks to an unusual lockup period, struggled to sell any at all, CNBC reported, thanks to a glitch in Morgan Stanley's share-sale system. Given the stock slip, that could have cost them a fair amount of money.

The debut marked the end of a somewhat turbulent listing process. Palantir chose to go public via a direct listing instead of an IPO, making it one of four high-profile companies to ever do so. (The others are Spotify, Slack and Asana, which also listed today.) And it had a lot of work to do in explaining to investors exactly what it does. "We are kind of an unusual company," Sankar said, explaining the company's long sales cycles, "and investors were kind enough to spend a lot of time understanding the business."

Palantir got its start building Gotham, a data dashboard for defense and intelligence agencies, but it now has bigger aims. Its Foundry product does something similar but for the private sector, creating what the company calls "a central operating system for [companies'] data." BP, Ferrari and Airbus are clients.

Critics have said the company is more like a services business than a software one, partially because of the heavy customization to its platform it reportedly does for clients. "That was one of the reasons that we had investors come see demos, to see this quote unquote extensive customization work," Sankar said. Recent R&D investments, he argued, have made it much easier for customers to tailor the platform to their needs, without Palantir's help. "A lot of those investments really hit in the back half of 2019," he said, adding "much more product leverage." Its financials suggest that might be true: Palantir's revenue is trending in the right direction, with a $165 million net loss in the first half of 2020, compared to $280 million for the same period a year earlier.

But financials may not be Palantir's biggest problem. Given its work with the military, ESG-minded investors may give the company a wide berth. "It's intrinsic to who we are," Sankar said. "Whether we will qualify for ESG or not, that's kind of a non-goal. I think investors should decide whether they think we're an interesting business or not."

Palantir's choice of customers could also disrupt it from winning new business, too. The company says it won't work with customers whose positions are "inconsistent with our mission to support Western liberal democracy," noting specifically that it will not work with the Chinese government. That could work to Palantir's benefit — the U.S. government might be more inclined to work with it than with a competitor that has Chinese dealings — but it also limits the potential revenue opportunity.

Others may take issue with its work with ICE, where its technology is used to help organize raids — something activists have targeted the company for. When asked if the ICE work could prevent other organizations from wanting to work with Palantir, Shankar said "it's quite possible," adding that the company works "on difficult problems, and we're going to embrace the complexity and the nuance of these problems." After all, he pointed out, "we started building software to help America and her allies kill and capture terrorists — that's really complex and nuanced." Palantir's work "gives us great joy, the things that we're enabling in the world, whether it's capturing human traffickers or cyber criminals," he said. "Customers will have to decide … for themselves."

For now, Palantir's big mission is to move. The company is relocating its headquarters from Palo Alto to Denver, which was "largely a cultural decision," Shankar said. "Counterfactually, you couldn't have started a business like this anywhere but Palo Alto; but also without our founders, you couldn't have started this business in Palo Alto, either. It was kind of a special set of circumstances, but I think for the next phase of our journey, Denver's the right home."

Correction: This article was updated at 3:15 p.m. PT to fix Palantir's opening and closing prices.

Image: Yuanxin

Yuanxin Technology doesn't hide its ambition. In the first line of its prospectus, the company says its mission is to be the "first choice for patients' healthcare and medication needs in China." But the road to winning the crowded China health tech race is a long one for this Tencent- and Sequoia-backed startup, even with a recent valuation of $4 billion, according to Chinese publication Lieyunwang. Here's everything you need to know about Yuanxin Technology's forthcoming IPO on the Hong Kong Stock Exchange.

What does Yuanxin do?

There are many ways startups can crack open the health care market in China, and Yuanxin has focused on one: prescription drugs. According to its prospectus, sales of prescription drugs outside hospitals account for only 23% of the total healthcare market in China, whereas that number is 70.2% in the United States.

Yuanxin started with physical stores. Since 2015, it has opened 217 pharmacies immediately outside Chinese hospitals. "A pharmacy has to be on the main road where a patient exits the hospital. It needs to be highly accessible," Yuanxin founder He Tao told Chinese media in August. Then, patients are encouraged to refill their prescriptions on Yuanxin's online platforms and to follow up with telehealth services instead of returning to a hospital.

From there, Yuanxin has built a large product portfolio that offers online doctor visits, pharmacies and private insurance plans. It also works with enterprise clients, designing office automation and prescription management systems for hospitals and selling digital ads for big pharma.

Yuanxin's Financials

Yuanxin's annual revenues have been steadily growing from $127 million in 2018 to $365 million in 2019 and $561 million in 2020. In each of those three years, over 97% of revenue came from "out-of-hospital comprehensive patient services," which include the company's physical pharmacies and telehealth services. More specifically, approximately 83% of its retail sales derived from prescription drugs.

But the company hasn't made a profit. Yuanxin's annual losses grew from $17 million in 2018 to $26 million in 2019 and $48 million in 2020. The losses are moderate considering the ever-growing revenues, but cast doubt on whether the company can become profitable any time soon. Apart from the cost of drug supplies, the biggest spend is marketing and sales.

What's next for Yuanxin

There are still abundant opportunities in the prescription drug market. In 2020, China's National Medical Products Administration started to explore lifting the ban on selling prescription drugs online. Although it's unclear when the change will take place, it looks like more purely-online platforms will be able to write prescriptions in the future. With its established market presence, Yuanxin is likely one of the players that can benefit greatly from such a policy change.

The enterprise and health insurance businesses of Yuanxin are still fairly small (accounting for less than 3% of annual revenue), but this is where the company sees an opportunity for future growth. Yuanxin is particularly hoping to power its growth with data and artificial intelligence. It boasts a database of 14 million prescriptions accumulated over years, and the company says the data can be used in many ways: designing private insurance plans, training doctors and offering chronic disease management services. The company says it currently employs 509 people on its R&D team, including 437 software engineers and 22 data engineers and scientists.

What Could Go Wrong?

The COVID-19 pandemic has helped sell the story of digital health care, but Yuanxin isn't the only company benefiting from this opportunity. 2020 has seen a slew of Chinese health tech companies rise. They either completed their IPO process before Yuanxin (like JD, Alibaba and Ping An's healthcare subsidiaries) or are close to it (WeDoctor and DXY). In this crowded sector, Yuanxin faces competition from both companies with Big Tech parent companies behind them and startups that have their own specialized advantages.

Like each of its competitors, Yuanxin needs to be careful with how it processes patient data — some of the most sensitive personal data online. Recent Chinese legislation around personal data has made it clear that it will be increasingly difficult to monetize user data. In the prospectus, Yuanxin elaborately explained how it anonymizes data and prevents data from being leaked or hacked, but it also admitted that it cannot foresee what future policies will be introduced.

Who Gets Rich

  • Yuanxin's founder and CEO He Tao and SVP He Weizhuang own 29.82% of the company's shares through a jointly controlled company. (It's unclear whether He Tao and He Weizhuang are related.)
  • Tencent owns 19.55% of the shares.
  • Sequoia owns 16.21% of the shares.
  • Other major investors include Qiming, Starquest Capital and Kunling, which respectively own 7.12%, 6.51% and 5.32% of the shares.

What People Are Saying

  • "The demands of patients, hospitals, insurance companies, pharmacies and pharmaceutical companies are all different. How to meet each individual demand and find a core profit model is the key to Yuanxin Technology's future growth." — Xu Yuchen, insurance industry analyst and member of China Association of Actuaries, in Chinese publication Lanjinger.
  • "The window of opportunity caused by the pandemic, as well as the high valuations of those companies that have gone public, brings hope to other medical services companies…[But] the window of opportunity is closing and the potential of Internet healthcare is yet to be explored with new ideas. Therefore, traditional, asset-heavy healthcare companies need to take this opportunity and go public as soon as possible." —Wang Hang, founder and CEO of online healthcare platform Haodf, in state media China.com.

Zeyi Yang
Zeyi Yang is a reporter with Protocol | China. Previously, he worked as a reporting fellow for the digital magazine Rest of World, covering the intersection of technology and culture in China and neighboring countries. He has also contributed to the South China Morning Post, Nikkei Asia, Columbia Journalism Review, among other publications. In his spare time, Zeyi co-founded a Mandarin podcast that tells LGBTQ stories in China. He has been playing Pokemon for 14 years and has a weird favorite pick.

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