Planet Stock Forecast

Planet Stock Forecast: Planet Labs PBC [NYSE:PL] (formerly Planet Labs, Inc) is an American integrated aerospace and data analytics company, which provides global, daily satellite imagery and insights through a constellation of satellites.

The company operates history’s largest fleet of Earth-imaging satellites, as well as designs and builds online software, tools, and analytics needed to deliver data through an online platform worldwide.

The satellite imaging services provider uses satellite imagery data, which are currently are either impossible or cost-prohibitive to obtain, to make the daily pace of change on earth visible, accessible, and actionable.

The company designs and manufactures miniature satellites called Doves that are equipped with high-power cameras and telescopes to image all of Earth’s landmass every day.

This differentiated data set powers decision-making in a myriad of industries including agriculture, forestry, mapping, insurance, and government.

The company’s fleet of over 200 highly capable Earth-imaging satellites, the largest in history, images the whole Earth land mass daily.

Decision makers in business, government, and within organizations use Planet’s data and machine learning-powered analytics for climate monitoring, crop yield prediction, urban planning, and disaster response to name a few. 

The Bull Case for Planet Labs

We hear about space tourism on a regular basis. The reason space tourism generates so much buzz is the glamor and excitement associated with venturing into space but chances are that you may not have heard much of about Planet Labs – despite the fact that its work involves dealing with space in one way or the other.

Planet Labs may lack the glamor quotient of seeing earth from above, but the business the company runs has the potential of generating huge amount of revenue for Planet in the future.

Planet Labs has close to 250 Earth-imaging satellites in orbit today, capable of capturing images of the entire earth on a daily basis. The company receives tremendous number of images every day, which means the immense data library at its disposal will be hard to replicate by its competitors in near future.

Planet Labs is one of the largest Earth-imaging companies in the world, and the amount of unique data it possesses means there’s a never-ending line of private and public sectors queuing up to buy the images in its vast library.

The company’s fourth quarter showed few glimpses of success, and aroused optimism about its future prospects. The company’s current market cap between $1-2 billion may not currently mean much, but it shows that Planet Labs has plenty of room for expansion.

Rapid Growth and Improving Margins

An important thing to note is that over 90% of PL’s revenue is recurring in nature. The company’s major source of revenue is selling images to its customers.

PL enjoys the benefit of very low operational costs once the satellites are placed in space. It is precisely the reason for PL’s steadily improving margins.

Its Q4 non-GAAP gross margin was 42%, a solid hike of around 25% in comparison to the same period a year ago. The company expects its 2023 fiscal non-GAAP margins to hover between 45% and 50%.

And because of this, Planet’s net loss margin has been dwindling, albeit at a slow pace. In the current fiscal year, its net loss was 105% of its total revenue, an improvement over 112% the company had to contend with in the previous year.

The net loss margin, no doubt, is still very high, but the reduction shows that the company is moving in the right direction.

Planet’s revenue is also growing at a satisfactory pace, with the top line increasing 23% to $37 million. More importantly, the company seems to be highly optimistic about its 2023 total revenue, expecting it to be $180 million, which means a jump of over 36% year-over-year, representing an expansion of 37% year over year.

If the company manages to achieve it, it would signify growth rate of 131% in comparison to 2022 fiscal year. This would be nothing short of music to investors’ ears.

Planet Labs PBC recently signed a contract with the German Federal Agency for Cartography and Geodesy to provide it with daily, high-resolution satellite data, production and provision of maps, and consultation services, which could help the agency in environmental and nature conservation as well as forest and agricultural monitoring.

The Future For Planet Is AI

Despite all the achievements in a short period of time, there’s still a long way to go.

Planet’s loss margin is going downhill, but the same is not the case with the rate at which it is burning its cash flow.

The company burned $57 million in the 2022 fiscal year, which is a significant jump over the $34 million it burned a year ago.

Planet Labs does have considerable cash on its balance sheet, but the fast rate of cash-flow burn could be a cause of concerns for investors.

More importantly, investors and experts are keeping a close watch on when the company will roll out its own AI solutions.

Right now, the company does not possess AI capabilities; it just sells images to its customers, who in turn are responsible for analyzing the images and the data they throw up.

Developing capabilities to capture as well as analyze images for its customers could create new possibilities for Planet Labs.

Data capturing and analysis both under one roof could make Planet more valuable to its customers. Also, an in-house machine-learning abilities could make analyzing images easier for non-experts as well, which in turn will expand the scope for Planet’s services.

Is PL a Buy?

Planet Labs is the leader in the segment it operates in, and as such enjoys a distinct competitive advantage. Its increasing margins and fast growth bodes well for the company in the future.

On the flip side, however, its rapid rate of cash burn is a worrying signal. The company is in its early stages, which means investors would like to adopt a wait-and-watch approach before they jump in.

Planet holds a lot of potential, and if the company manages to leverage its potential and score big, the current share price is a steal.

The key is to keep an eye on its cash flow situation, and whether AI capabilities come to fruition, before making it a part of your portfolio.

Bear Case for Planet Labs

While Planet Labs has an above average gross profit margin (Revenue- Cost of goods sold (COGS)/Revenue), the same cannot be genuinely said about the operating margin, which is significantly negative, and to make matters worse, shows no signs of improvement despite increasing revenue. 

In fact, when we take a closer look at all the expenses, we see that all the three main expenses segments are showing an increase as a percentage of revenue.

Few argue that it is important to increase expenditure on R&D to stay ahead of the competition, but what is more disappointing is the fact that general and administrative expenses account for nearly 50% of the total revenue.

To top it all, the sales and marketing budget is high as well. In short, with expenses growing at a faster rate than the revenue being generated by the company, predicting when the company will turn profitable is a fool’s errand.

On the positive side, the company has no long-term debt obligations, and it possess significant amount of cash & short-term investments, amounting to around $490 million. This cash buffer could provide the company some boost as it tries to become profitable.

Analysts Are Increasing Estimates

Analysts are bullish about the company’s ability to augment revenues, with estimates raised to approx. 40% growth for the current fiscal year. This is more than what the company has been delivering so far, but it can be expected given the amount the company has been spending on sales & marketing.

Also, an important thing to note here is that the company’s revenue generation of late has been pretty impressive, with the most recent quarter delivering +26% revenue growth, the highest in comparison to the last three quarters. 

Annual revenue for FY22 reached $131 million, which provides a much-needed assurance to shareholders, as it attests to the fact that there is indeed a market for the type of data that the company generates and sells.

Net Revenue Retention > 100%

The good thing for the company its revenue is largely recurring in nature, with its net dollar retention rate a little above 100%, at 105%. What it means is that the company’s customers on average are satisfied with Planet’s services, and as such, happy to renew the services they get from the company.

The most vital giveaway from the company’s guidance for FY2023 is that the company expects revenue growth to be between 40% and 45%, and still does not expect to return to profitability, with a significantly negative adjusted EBITDA.

Without any earning to boast of, it is not easy to put a value on its stock. Anything can be said with certain amount of certainty, only when a clearer picture emerges as to when the company can become profitable, and by how much.

In the short to medium term, shareholders can breathe easy knowing well that the company has enough cash and short-term investments to tide over the losses for some time to come. However, the company needs to be careful in the longer run, as failure to generate profits will cause it to run out of cash at some point in time.

Is Planet Stocks a Buy?

Planet Labs PBC is a unique company, which makes it rather interesting from an investor’s point of view. It has a fleet of satellites that keep monitoring the earth. The high-resolution images the satellites capture is then processed through advanced machine learning software to derive meaningful insights from the captured data.

These images and their interpretation is used by a variety of industries and sectors ranging from military, agriculture and forestry to environment to mention a few.

The technology the company has developed makes it easier to serve new customers or serve its existing customers in a better way.

Planet’s customer base is growing at a steady pace, and the company has the largest number of satellites in its fleet, 10x more than its competition.

Planet Labs Addressable Market

One of the most important things that has been attracting investors by the bucketload towards Planet Labs is the enormous market opportunity ahead. 

As per experts, the company’s immediate addressable market is satellite data services, which is worth over $20 billion. However, the market size becomes more massive if we take into consideration digital transformation applications

The need for the services the company provides is extensive, a fact demonstrated by its customer base of more than 800 customers spread across sectors such as agriculture, mapping, energy, forestry, finance and insurance to name a few.

Planet Is Duty Bound As a PBC

Another thing that makes Planet stand out amongst its peers is that it is amidst a handful of public companies that is a Public Benefit Corporation (PBC). 

What it means is that Planet is duty bound to look after the welfare and well-being of its employees, communities and society, apart from that of its stakeholders.

Planet owns and operates the largest fleet of Earth-imaging satellite fleet, which allows it to take pictures of every single landmass in the world.

The company’s highly impressive database, its recurring subscription model, and expanding customer base along with meaningful investment to enhance its software capabilities makes it a top contender to capture the pole position when it comes to delivery of daily earth observation data.

However, there are a few things that investors might like to see before they can confidently invest in the company.

Data Analytics Must Improve

As of now, the company’s primary revenue generator is the satellite images that it provides to both government and private organizations.

The company advertises that these images are ready for analysis and interpretation by advanced technologies like Machine Learning and Artificial Intelligence (AI).

The only “glitch” here is that the company lacks the in-house capabilities to analyze the images it provides to its customers by employing artificial intelligence and machine learning. Many experts feel this could be the reason for its inconsistent revenue growth.

Planet Labs, however, is taking right steps in the direction to develop a platform to produce insights from its data. The company recently acquired VanderSat, which is a data analytics platform for the agriculture industry.

The company hopes to leverage the experience of VanderSat’s data science team to develop its own in-house analytics platform to take care of the entire needs of its customer base under a single roof.

Investors interested in Planet Labs would be well served by following any news related to the development of an analytics platform.

The transformation from a mere data collection company to more of an analytics platform can reap reach dividends for the company as well as its stakeholders.

Planet will become a more valuable company for its customers, which means both customer retention rate and revenue will go up.

Customer Growth

A shift towards analytics would also help Planet expand its customer base at a healthy pace. This is not that hard to understand for the simple reason that many of its customers may not be in possession of machine-learning capabilities to analyze the images they buy from the company.

The development of an analytics platform, as such, is sure to attract more customers to its fold. Planet’s customer growth rate has been impressive to say the least with the company currently boasting of around 800 customers. 

A shift towards analytics could lead to a handsome growth in its customer base, which in turn would push north its revenue and add to its customer retention rate.

Cash Flow Must Turnaround

It is not unusual for businesses to lose money in their initial years of operation. However, positive cash generation is a positive sign as the company can reinvest the money to grow at a satisfactory pace.

The company’s cash flow for the current fiscal has been in excess of negative $30 million, which is still much better than the negative cash flow of $52 million in the year ago period.

Analysts estimate that the development of analytics platform will augment its customer base and help it generate positive free cash flow.

The company operates over 200 satellites; and because of the sheer size of its fleet, it enjoys an unparalleled competitive advantage.

The barriers to entry are pretty much high in the sector it operates in.  On the flip side, the company needs to prove that it is more than just a data provider.

Unless Planet develops artificial intelligence and machine learning capabilities, it could be less more attractive to long-term investors with an extremely diversified portfolio. For those comfortable with taking a couple of long shots, this stock might be one to consider.

Planet Stock Forecast: Concluding Thoughts

Planet Labs PBC is a promising company that operates a unique business of providing Earth observation data. It enjoys a leadership position in its sector with over 1,700 images of each spot on the Earth’s landmass.

This data set cannot be replicated as competitors simply cannot go back in time to replicate this data. Also, with the sheer size of its fleet, the competitors simply cannot match Planet’s volume and consistency of data.

Over 90% of the company’s revenue is recurring in nature, which the company does not have to spend a ton of money on acquiring new customers.

Management has identified at least seven verticals that can directly or indirectly benefit from Planet’s data. The company has several strategic investors, who can steer the satellite data provider in the right direction. 

Talking about the negatives, significant investments in sales and marketing, and R&D, a clear path to profitability in the near future seems highly improbable. In order to achieve long-term growth and turn profitable, the company needs to better manage its costs.

All in all, at this point of time, investors should prefer watching from the sidelines, and decide to jump in only when the company starts to show promising signs of better managing its costs, deliver operational leverage, develop an analytics platform, and prove that it can be profitable.  

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