The secretive data and surveillance company Palantir will offer its stock to public investors for the first time Wednesday, a long-anticipated move that promises to transform its business and its public profile.

The direct listing on the New York Stock Exchange is one of the most hotly-anticipated tech IPOs in years, and investors seek to capitalize on a business that has grown by almost a third each year since 2009. But some recently disclosed financial records, furnished to the Securities and Exchange Commission as part of the public offering process, suggest Palantir’s business may be overly concentrated among a few loyal customers, raising questions about whether it can scale up the same way as other tech outfits.

The records show that Palantir has 125 corporate and government customers, a relatively small number for a large, publicly traded tech company. Two-thirds of its revenue comes from its top 20 customers, raising concerns that it could lose business as long-running government contracts are renegotiated. It generated an average revenue per customer of $24.8 million last year.

Palantir’s reliance on that insular market could make it a risky bet for many investors, said Rohit Kulkarni, a senior analyst at MKM Partners in San Francisco.

“The company is still almost at the mercy of a small number of government contracts,” Kulkarni said. “If and when they come up for renewal the investment community will get extremely spooked about how those negotiations go.”

Palantir, named for a mysterious black orb that a dark wizard uses to communicate with a giant disembodied flaming eye in J.R.R. Tolkien’s Lord of the Rings trilogy, has long been one of Silicon Valley’s most closely held secrets. It was founded in 2004 by tech investor Peter Thiel with financial help from the CIA and has stayed private longer than many observers thought it would.

Advertising

While government contracts remain the bedrock of its business, it has diversified significantly in recent years. Today, its algorithms, with names such “Gotham” and “Foundry,” are applied to problems as high-stakes as spotting terrorism suspects and as mundane as analyzing payroll.

Some of Palantir’s contracts with the U.S. government have been a lightning rod for activists and its own employees. In recent years it has renewed lucrative partnership with Immigration and Customs Enforcement, provided digital profiling tools to the federal agency as it carried out President Donald Trump’s increasingly controversial policies for apprehending and deporting undocumented immigrants. The company acknowledged in its filing with securities regulators that some of its contracts have made it a target for protests, but did not detail any of its work with ICE.

It has also nosed its way into the Defense Department’s information technology industry, capitalizing on efforts to modernize the Defense Department’s technology to compete with foreign nations such as Russia and China. In an $800 million coup for its military business, Palantir in 2019 beat out Raytheon to become the primary provider for the Army’s battlefield intelligence system.

That sort of work is expected to take on a higher profile in the future as the U.S. military seeks to rely more heavily on artificial-intelligence algorithms and unmanned weapons systems.

Palantir doubtlessly has more room to grow as it seeks to expand its military work. It recently took on another Army contract, and in March it won an $80 million contract for a complex Navy logistics system.

Still, there is a concern that the company’s long-term market could be limited.

Advertising

Palantir’s typical corporate customer is a large, multinational company with huge amounts of data. While Palantir has emphasized its opportunity to expand within these companies – aiming to become “a central operating system” for their data – it will eventually run out of giant global companies to sell to.

Brendan Burke, an analyst at venture capital industry research firm PitchBook, said he thinks investors have valued Palantir as if it were an enterprise software company. But its financials suggest that it is primarily in the government contracting business.

“It’s clearly not an enterprise software company with government customers,” said Brendan Burke, an analyst at venture capital industry research firm PitchBook. “It is a government contractor that is expanding and transferring some of its lessons to the private sector.”

Palantir is growing revenue rapidly like a tech company, but because it invests heavily in sales and marketing, its profit margins are below those of typical software companies. At about $20 billion, Palantir would be valued in line with other business software makers such as Splunk and Elastic Search. At that price, public market investors would be betting the company can find new avenues of growth.

“It has achieved high growth. I think investors expect high growth to continue,” Burke said.