There’s been a lot of interest in space-themed stocks recently, with Earth observation companies such as BlackSky, Satellogic and Spire all planning to go public this year via Special-purpose Acquisition Company (SPAC) mergers.
One privately owned Earth data and analytics company set to carry out a SPAC IPO in 2021 is Planet Labs Inc., the world’s largest Earth imaging enterprise, and a leading specialist in the observation sector.
Planet is a high-growth subscription-based business, producing 25 terabytes of data every day for its portfolio of over 600 customers.
As its merger with dMY Technology Group, Inc. IV (DMYQ) is imminent, we’ll take a closer look at what makes Planet such an attractive and promising buy.
Planet.com: The Bloomberg Terminal For Earth
Planet Labs styles itself as “the Bloomberg Terminal” for Earth observation data, providing mission critical information for companies and organizations operating in fields as diverse as the Defense & Intelligence industry, the agricultural sector, finance and insurance, forestry and civil administration.
The company was established in 2010 by a group of former NASA employees, and quickly gained a first-mover advantage in the space. Planet is now a vertically integrated Earth observation and remote sensing outfit, and not only operates, makes and designs it own satellites but also processes the information it collects to generate workable analytic and image data to its growing base of clients.
At its most fundamental level, the field of Earth observation involves bringing together information about the planet’s biological, chemical and physical systems, usually using remote sensing devices such as imaging and other kinds of satellites.
These technologies enable experts to parse the data they glean from these devices to monitor and assess changes in, or the status of, varying different environments, whether they be manmade or natural.
Planet Has A Robust Moat
To carry out its work, Planet has put together the world’s largest constellation of satellites, pioneering the concept of “agile aerospace”, in which the company is able to rapidly map the vast daily changes across the globe, getting data out quickly to its users as and when it’s needed.
Where the company’s competitors built up a suite of expensive, bespoke satellites, Planet instead focused its fleet on Dove satellites, which provide lower resolution data, but which are able to compensate by having an always-on, broad-area monitoring capability, and can generate high re-visit rates during their monitoring cycle.
In addition to these cheaper, smaller satellites, Planet also has a group of SkySat satellites that gathers higher quality 50cm resolution, with plans to enhance its image capabilities to 35cm in the coming year.
Given Planet’s decade-long presence in the space – and the particular nature of the industry it’s operating in – the company also enjoys a robust business moat, reinforced by its large proprietary data archive and its agile space missions.
For rivals just establishing themselves in the Earth observation field, Planet’s first mover advantage in this regard is almost impossible to replicate.
Valuation and TAM
Planet Lab’s consolidated revenue has been increasing by a compound annual growth rate of 27% since 2016, and it has a substantial market opportunity in the environmental, social and governance (ESG) space.
The company estimates that its total addressable market (TAM) by 2027 could be worth up to $129 billion. Planet’s Satellite Data Services would account for $19 billion of this, but it’s the multi-trillion dollar global economic shifts in Digital and Sustainability Transformation that really promises to be the big revenue generator for Planet in the future.
The Digital Transformation revolution, for instance, which involves the roll-out of Big Data and AI, is expected to represent a cumulative $100 trillion value by 2025. Issues affecting Smart Cities & Urban Planning, Supply Chain Sustainability and Precision Agriculture are all areas that fall into the remit of Planet’s work, and the firm reckons its offerings in this sphere might total more than $75 billion over the next five years.
Furthermore, Planet has a role to play to the $53 trillion Sustainability Transformation initiative, helping countries implement their Forest Management and Air/Water Pollution Monitoring, and assisting private organizations meet their Carbon Footprint targets. This segment could generate $35 billion for Planet before 2027 too.
Planet Lab’s annual revenue for last year came to over $110 million, and the company’s proposed merger with DMYQ puts the enterprise value of the firm at $2.25 billion. The proposed SPAC deal is expected to go through in the last quarter of 2021, and is expected to provide Planet with $545 million in cash.
Titans of Technology & Finance Are Backing Planet
There are some important backers currently invested in Planet Labs, including Google, Time Ventures and BlackRock. Google actually sold its Terra Bella satellite operation to Planet in 2017, and at present owns over 10% of Planet/DMYQ shares.
Planet has a well diversified and differentiated revenue base, which de-risks it somewhat from the typical customer attrition problem that many businesses face.
It also enjoys multiple levers for growth, including the ability to scale through existing verticals such as sales, marketing and software solutions, and the opportunity to expand its Platform Ecosystem by offering a greater range of applications and services.
Other long-term growth factors that Planet hasn’t yet factored into its roadmap would be the fusion of new data sets leading to synergistic impacts not already envisioned, and the possibility of strategic acquisitions to consolidate the space.
Risks to buying Planet Stock
The principal risk for a company about to undertake a SPAC merger is the possibility that the proposed deal eventually falls through. This might explain why shares in DMYQ moved little after the announcement of the Planet merger, still trading close to the value of its cash in trust. But outside of this general risk, Planet Labs also faces a couple of other specific problems.
The first is that, as the observation market matures, the need for more sophisticated analytics will grow. One of these competencies will be the ability to provide predictive intelligence data, which Planet does not yet do. The company alluded to the possibility of acquiring this capability in the future, but any falling behind on this issue could be costly.
Secondly, Planet’s net dollar retention (NDR) rate for the First Quarter 2022 dropped below its NDR rate for the full year 2021, at 93.2% vs. 112.8% respectively. For a fast-growing company this isn’t particularly pleasing, but its track record of up-sell expansion – and the prevalence of long term multiyear contracts – might prove that these Q1 numbers are simply down to seasonality on the part of Planet’s annual business cycle.
Is Planet.com Stock A Buy?
There are two major secular trends that Planet is poised to capitalize off: the rise of space-themed companies, and the growth of the ECG industry.
Together these markets will be worth trillions of dollars in the years to come, and Planet is sure to take its share of this lucrative opportunity.
Given the relative stability of DMYQ’s stock price, investors should see this as a good time to buy, since the closer the company get to its merger date, the greater the likelihood for price volatility.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.