Is This The #1 Most Hated Stock?

Planet Labs announced its most recent earnings report on Sep 7, 2023, and the reaction of investors would suggest this might be among the most hated stocks on Wall Street now. Before we get into the reasons why, let’s look at the numbers for the most recent quarter.

During its FY 2024 second quarter, revenue spiked higher by 11% to $53.8 million on the back of 944 customers, an increase of 10% versus the year ago quarter.

The company reported that gross margin had inched higher from 48% to 49% while the Non-GAAP gross margin stayed steady at 52%.

Another positive note was that the balance sheet remained pretty with $367 million in cash, equivalents and short-term investment with no debt to speak of. 

All the above could be interpreted positively so why did the stock selloff by 16% following the announcement?

#1 Most Hated Stock On Wall Street?

A primary reason Planet Labs sold off is management’s projections for forward guidance were poor. The top brass cited a number of reasons for this including longer B2B sales cycles than originally anticipated, as well as a relatively high friction customer onboarding process.

Perhaps an underestimated challenge the team faces is the time it takes to establish a new market. Planet Labs is among the few pioneers that are taking satellite pictures of earth. CEO Will Marshall has built a business that does so daily, a highly impressive feat with his fleet of “doves” – small satellites that take high quality pictures.

But Wall Street was in no mood to consider the challenges or pluses when earnings were reported and sent PL share price tumbling to new lows of around $2.50 per share.

So why do we make the statement that this might be the #1 most hated stock on Wall Street? For that, we take a closer look at the valuation as it relates to the balance sheet.

At $2.51 per share, where the share price hit the day after earnings, Planet Labs had a market capitalization of just $697 million. This is an astonishing valuation when you look more deeply at the balance sheet figures, which reveal that cash, equivalents and short-term investments combine to total $367 million.

Reading between the lines that means, investors are so disenchanted with Planet Labs that the entire business ex-cash is being valued at $330 million. For a company with a sales run-rate of over $200 million annually, backed by Google, and with top tier investors, and good prospects for the future, the valuation is truly punitive.

But when sentiment is poor, rationale gets thrown out the window. And that certainly appears to be the case for Planet Labs. Until the sentiment tide changes, which will likely be catalyzed by a fundamental shift that ignited Wall Street’s enthusiasm again, shareholders have little reason to be optimistic.

Will Planet Labs Stock Recover?

It’s quite possible that the Street is being myopic in its analysis of Planet Labs at this time. For one, government contracts, though difficult and lengthy to acquire, are highly sticky once cemented. That’s a positive omen for the future.

CEO Will Marshall also claimed that 70 qualified leads are in the current sales pipeline with $1m+ potential annual revenue potential. In the coming fiscal years, a similar sales close rate as the past would be a real boost for Planet Labs revenues, and in turn its path to profitability.

It should also be noted that Planet Labs management team acknowledged over the past quarter that costs were getting out of hand relative to revenues and decided to chop some of the team and allocate resources to high impact, high probability revenue opportunities.

That is critical because losses continue to burn a hole in Planet Labs cash pile. The company has ample room to turn the ship around and find a path to profitability, but it’s not evident yet.

The Future Is Bright

Some bright spots for Planet Labs can be spotted on the horizon. Among the most prominent is its plan to upgrade its fleet of satellites to next-gen Pelican (from the existing doves), slated to launch at the end of this calendar year.

Another positive for the firm is its integration of Singerise, a company it acquired during the quarter, which has a $4-6 million run rate. More importantly, the client onboarding hurdle should be lowered when Sinergise is fully exploited because customers won’t be so reliant on internal labor resources.

Further, when we look at Planet Labs geographical reach it is broad and impressive. Just in the past quarter, clients were locked in from the United Kingdom to as far afield as Asia.

The company’s connections to power should not be underestimated, too. CEO Will Marshall regularly meets with top government representatives from around the world. He’s got the “in” to the halls of power and the odds are those relationships will translate to a material and sustained sales bump over the long haul.

Planet Labs Earnings Report: #1 Most Hated Stock?

Planet Labs share price crumbled post-earnings on the back of lower revised guidance from management and continued losses eating into the company’s cash pile. However, the future has a number of catalysts that have the potential to turn around what appears currently to be a sinking ship.

For one, the company has an enormous amount of data, as much as fifty petabytes according to COO Kevin Weil that can be leveraged to support machine learning and AI models.

It also has the potential to generate sticky revenues over the long-term when contracts are sealed across the broad pipeline of qualified customer candidates.

At the very least, the entire operational business seems to be underpriced currently given the comparison of the firm’s market cap with its liquid reserves. We see a brighter future, but when investors will reward the company is up in the air, and likely won’t happen until a positive fundamental catalyst is announced.

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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.