Is The Next Google Out Of This World?

Imagine you could go back in time a couple of decades and buy Google stock, what information would have been valuable in order to foresee its monumental growth trajectory?

To begin, you would have needed to know that data would mushroom in importance. If a company could organize the world’s information or data – as Google’s mission proclaimed – better than anyone else it would have a chance to create a successful business. 

It would also need an A+ user experience that was universally applauded as intuitive, so the reams of data could be easily accessed. 

And then you would want to know that Google had the pick of the bunch when it came to talent because ambitious engineers flocked to the firm.

Of course, the Google train has long since left the station but what if another company possessed many of those same ingredients and was trading at rock bottom prices?

Enter Planet Labs.

Planet Is Google For Earth Data

CEO Will Marshall describes Planet Labs as being equivalent to Google for Earth data, so what does that mean?

Well, Planet Labs, which Google invested in, takes snapshots of every corner of the earth via its fleet of satellites every 24 hours.

Those images form a massive dataset that can be leveraged, sold and re-sold to customers in diverse industries. For example, Planet Labs data can identify when roads are built in the Amazon, a precursor to deforestation. 

You might remember the Chinese spy balloon fiasco some time ago. It was Planet Labs that could trace the movements of the balloon using its image library all the way back to its launch point in China.

So too can Planet support governments in identifying key military movements across the globe. 

The use-cases are too many to mention and it many ways rival the variety of Google search queries. Everybody searches for something different but collectively the demand for information from the mountains of data Google can surface has created a trillion dollar business.

Will Planet Labs grow to become a trillion dollar business? It’s not likely anytime soon, but it does have some key attributes that make for a compelling investment opportunity.

In its official materials, the company describes itself as being akin to a Bloomberg terminal that aggregates data for the financial industry. The difference is Bloomberg gathers data from numerous sources whereas Planet owns its own data, so in many respects it is even more powerful.

Now the question is whether the company is attractive from an investment perspective.

Is Planet Labs a Good Stock to Buy?

Planet Labs share price is down mightily this year, falling by 49.4% at last count. With such a compelling story and prospects, what’s going on with PL share price?

Let’s start with the good. Planet Labs is the rare SPAC company that actually delivered against forward-looking projections. Unlike so many other SPACs that forecast massive revenues and earnings, only to disappoint, Planet actually reported numbers in line or close to guidance since coming public. 

This isn’t some fly by night, low-revenue SPAC, but instead is a company pacing $200+ million in annual revenues on the back of 900 customers. 90% of its revenue is recurring and over 90% of its contracts are multi-year, leading to revenue predictability. Most recently, it secured an extension of its NASA contract, leading to tens of millions of revenues in the medium term.

So, what’s the catch? Why is Planet Labs Share Price Down?

To answer that we can look to the top and bottom line of the profit and loss statements.

Sure, the company is on track to report a couple of hundred million of revenue but the pace of growth has slowed from 59.3% in the year ago quarter to 11.0% in the most recent quarter. Wall Street doesn’t like a slowdown in growth and it’s punished PL stock accordingly.

Another reason Planet Labs fell out of favor is its failure to report positive operating income. For 12 quarters straight, EBIT, or operating income, has been in the red.

Still, the company is well-capitalized with $367 million in cash and short-term investments on the balance sheet, so it has ample room to re-invest in the company before turning on the profitability spigot.

It seems clear that the share price is down because the company has failed to meet Wall Street’s expectations but the fundamentals are actually pretty solid.

This is a company gathering data daily via high resolution monitoring with a highly scalable business model that can target markets ranging from agriculture and defense to natural resource management and insurance.

Put all those ingredients into the mix and you’ve got a compelling investment thesis. With the stock down so much this year the obvious question is whether it’s a bargain at these prices.

Credit: Planet Labs

Is Planet Labs Stock Undervalued?

According to the ten analysts covering Planet Labs stock, it is undervalued by 142%. That calculation is computed by comparing the current share price to the analysts’ consensus fair value price of $5.48 per share.

After running a discounted cash flow forecast analysis, it appears that Planet Labs is undervalued by at least 35.1% because intrinsic value sits at $3.05 per share.

Something we found intriguing on closer examination of the financial statements is that the present market capitalization of the firm is $657 million while the liquidity reserves in the form of cash and short-term investments is $368 million.

The company is saddled with just $26 million of debt so if we count that against the cash pile we arrive at $342 million of net liquidity and a market cap $315 million higher.

Or in other words, this $200 million a year business, including all its operations, new fleet of pelican satellites, pipeline of 70+ million dollar deals and a handful of 10 million dollar deals, is being valued by the market at about 1.5x sales.

That would suggest this stock is very much on sale at this point in time. It’s no wonder famed investors like Steve Jurvetson were so enthusiastic to support the company’s management at the recent Investor Day.

Indeed, it’s noteworthy that he’s been an investor from the beginning, even before the company was formally incorporated.

Wrap-Up

Planet Labs has many of the ingredients needed for long-term success. Its management team stem from NASA, it has top tier investors such as Google, Benioff and Steve Jurvetson, a scalable business model, proprietary data that is increasingly today’s gold, and is priced at rock bottom levels after disappointing Wall Street’s forecasts.

Management does need to convert its voluminous pipeline of prospects to top line revenues in order to steady the boat, and it must focus on improving enterprise customers user experiences to match the simplicity that Google delivers to its users. 

But to doubt this company is to bet against a team that has already overcome perhaps the biggest hurdles in its history, which include building some of the highest resolution satellites in space, partnering with SpaceX for launches, getting funded by top tier investors, attracting a world class talent pool, and going public to build a robust balance sheet.

Will the future be brighter for Planet Labs? Nothing is certain but there is enough to like about Planet to at least place it in a prime spot on any active investor’s watchlist.

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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.