Is This $2 Stock The Next Google?

Many companies aspire to be The Next Google, but most fall short of the mark. If a business hopes to emulate Google’s success, it’s going to need many of the characteristics that made the search giant such a roaring success, not least being able to search and analyze massive amounts of data and then display the most important parts.

Google has its own unique advertising model, but that wasn’t the case day one. Famously, Google was on the chopping block many times, putting itself up for sale to Yahoo among other suitors for peanuts relative to its current market capitalization. That’s because in the early days, Google didn’t have a clear commercialization plan.

Nowadays we think nothing of searching on Google and seeing sponsored ads or display advertisements on websites served by the Menlo Park headquartered firm but, back then, the initial team simply had a better way of surfacing relevant information, hence the mission statement to organize the world’s information.

So, what would a stock look like today that would be the next google? It’s probably fair to say that it wouldn’t actually compete with Larry Page and Sergei Brin’s company but rather would have a twist on the idea of surfacing relevant information among massive datasets.

Enter the Earth Observation sector.

Why Earth Data Matters

Where Google made its impact was organizing data related to a wide variety of sectors but what about earth data itself, would that be useful?

It turns out earth observation data is valuable in a host of applications. For example, it can be used to track climate change indicators, such as ice sheet depletion, vegetation changes, and sea-level rises.

Climate monitoring is quite an obvious application but some others are less clear yet highly valuable, such as disaster management and response whereby satellite imaging can be used to measure the impact of earthquakes and floods. If that data could be delivered rapidly, first responders could better allocate resources to evacuation planning and relief efforts.

Farmers could use imagery taken from space to monitor crop health, forecast yields and manage irrigation. For government, this is valuable also in ensuring the security of food supplies. The same could be said of water resource management, whether reservoir levels or managing water supplies more generally.

It may even be possible to track environmental conditions that contribute to the spread of diseases, whether that’s related to water quality or changes to vegetation.

Satellite data can be used also to measure everything from sea temperatures to algae blooms, crucial components for fisheries and marine ecosystems. 

Governments may be especially interested in detecting air pollutants and greenhouse emissions as part of initiatives to improve air quality and control pollution.

These are just a handful of the many applications that already exist and still innumerable others will be created over time.

So what stocks could perhaps ride this wave? One that stands out is Planet Labs, a leader in earth observation data and satellite imagery because it captures snapshots of every portion of the earth every 24 hours.

Unlike Google, which relies on crawlers to search for data on the web created by others, Planet captures and owns its own data.

Is Planet Labs a Good Stock to Buy?

Planet Labs (NYSE:PL) is no slam dunk buy, but it certainly warrants a deeper dive to explore its merits. 

Let’s get some of the minuses out of the way first before we address the pluses. First off, Planet Labs came public via a SPAC, most of whom have earned tarnished reputations for failing to hit milestones.

Planet has come remarkably close to hitting its stated financial targets but that hasn’t stopped it from plunging from $10 per share at the time of its market debut to just $2 per share and change now.

Just because a stock has fallen 80% doesn’t mean it can’t fall another 80% in principle. But the odds of that are very slim because Planet Labs has a market capitalization of $622 million and cash on the balance sheet of $118 million in addition to $249 million of additional liquidity via short-term investments.

Summing those two numbers up, you end up with just shy of $370 million in liquid reserves, meaning that the operations of the firm are valued at about $250 million.

Over the past twelve months, Planet Labs generated $209 million in revenues, representing 32.9% growth over the prior twelve month period. Growth is expected to continue moving forward, albeit at a slower pace. 

Still, the company is growing its top line on the back of already solid gross margins that last quarter came in at 48.9%. For a reference point, those numbers are higher than even Apple’s 45.2%.

If there is a clear reason why PL share price has fallen so sharply this year, down 51%, it’s because the top line growth is slowing and the operating expenses have led to sustained losses. Retained earnings, which capture the collective gains and losses from the income statement, now sit in the red to the tune of over $1 billion. 

While that is concerning, it’s not entirely a surprise. After all, building and deploying a fleet of satellites that captures every square mile of the earth every 24 hours and amassing that database of imagery is not a venture that can be built cheaply.

For an investor to bet on Planet Labs they need to have faith that the company is going to build a loyal base of enterprise customers (already 900+ exist) that come to rely upon and depend on so that recurring revenues continue long into the future.

1 Stock That Could Be The Next Google?

Planet Labs is akin to Google in the early days with massive access to data sets and is aiming to surface that data through machine learning and artificial intelligence. The range of applications it can support will inform the value it can provide, and the valuation of the company long-term.

For now, Planet Labs sits very much like Google about a quarter century ago, on top of attractive technology but lacking meaningful commercialization to wow investors.

Looking back a few decades, the bet on Google seems obvious but at the time it was fraught with risk. Would Altavista or Yahoo Search or Lycos or all the other search engines elbow it out and take market share? Could Google execute against its plan to broaden its AdSense share of market?

There were so many unknowns, and of course, over time, Alphabet (NASDAQ:GOOGL) went from strength to strength, building on its early foundations to create Gmail, Google Maps, Cloud and so on. 

The future is as foggy now for Planet Labs as it was for Google back then. But make no mistake about it, the range of applications that could be created on the back of PL datasets is limited only by imagination. As more corporations and governments realize the value, expect Planet Labs to ride the revenue wave higher, and with it should come profitability and a rising share price.

Excluding cash, Planet Labs trades at under 1.5x sales, a bargain for a company with so much potential. PL share price is trading so cheaply that it’s more like a call option on a company with enormous upside potential.

So, yes Planet Labs is a stock that could be the next Google because of its capabilities to organize and surface massive earth observation datasets. Now it’s up to management to deliver on that promise.

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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.