Is Planet Labs PBC (NYSE: PL) Stock a Buy?

These past couple of years have seen a broad economic shift in the scope of the space economy. Billionaires are traveling into space, new rockets are launching, space companies are going public, human space travel is becoming more accessible, and a surge in satellites, such as Starlink's internet constellation, have captured the headlines.

All this has brought investor interest, but as macro-economic conditions deteriorate on earth, eyes on the space prize have wandered.

Nevertheless, as Planet Labs PBC (NYSE: PL) demonstrates accelerated growth and momentum of its unique data subscription business, we look at its share price potential.

What is Planet Labs PBC?

Planet Labs is a San Francisco-based company that aims to use satellite imagery to monitor changes and trends on Earth. Its platform includes images, insights, and machine-learning algorithms that provide daily satellite data for use by businesses, governments, researchers, and journalists.

The data collected by Planet Labs has a wide range of applications, including helping farmers improve their crops, strengthening digital maps for Google, and enabling NASA to study climate variables around the planet. Governments also use the data to monitor events such as wildfires in California, floods in Germany, and the war in Ukraine.

The ultimate goal of Planet Labs is to provide a comprehensive view of the Earth on a daily basis, helping to better understand and address issues related to the health of the planet and humanity.

M&A News

On December 15, 2022, Planet Labs PBC announced that it has agreed to acquire Salo Sciences, Inc. for an undisclosed sum. Salo Sciences is a US-based company that develops solutions to address climate change and biodiversity loss. The acquisition is expected to close early next year, subject to customary closing conditions. This acquisition will allow Planet Labs to expand its offerings and further its mission of promoting positive social and environmental impact.

How Does Planet Labs PBC Make Money?

Planet Labs PBC makes money from selling its proprietary data set and analytics to its diverse customer base. These are delivered via subscription and usage-based data licensing agreements. The data is accessed through Planet's online platform and subscription APIs. Planet Labs' annual contract value is more than 90% recurring.

As of July 31, 2022, its end-of-period customer count was 855, representing a 17% Y/Y growth. Last year Planet Labs brought in over $100m in revenue.

These customers come from large commercial and government verticals, including agriculture, mapping, forestry, finance, and insurance, as well as federal, state, and local government bodies.

Planet Labs has more than 200 operational satellites providing data that is 100% machine learning ready.

PL Q3 Earnings Update

For Q3, Planet Labs reported strong financial results. The company's revenue increased by 57% Y/Y to $49.7m, while its gross margin expanded to 50% from 34% in the same period in the previous year.

Revenue beat Planet Labs' guidance of between $45m and $48m.

Planet Labs ended the quarter with $425m in cash, cash equivalents and short-term investments.

The company also announced several partnerships, including collaborations with Accenture (NYSE: ACN), Amazon Web Services (NASDAQ: AMZN) and Microsoft (NASDAQ: MSFT), and the launch of a new partnership with the International Space Station (ISS) National Lab. Planet Labs increased its full-year revenue guidance for the fiscal year 2023 to $188-192m, representing year-on-year growth of 45% at the midpoint.

Will Marshall, Planet’s Co-Founder, Chief Executive Officer and Chairperson, said:

We delivered another quarter of great results, which we believe is a testament to the strong execution across the company and the mission-critical nature of our data,
We saw great momentum in the government segment and announced multiple exciting new strategic partnerships in the commercial sector. Planet’s growth continues to be underpinned by global, secular tailwinds that are driving demand for our solutions. Our data helps enable customers and partners to address today’s most complex issues, ranging from climate risk and adaptation to geopolitical security.

Ashley Johnson, Planet’s Chief Financial and Operating Officer added,

Q3 marked another great quarter for Planet and we expect to close out the year strong with the quarter ahead.

PL Q2 Financial Results

Planet Labs PBC reported its second-quarter results on September 12.

For the fiscal Q2 period that ended July 31, 2022, PL EPS came in at -$0.07, beating FactSet analyst consensus of -$0.14. Planet Labs achieved sales of $48.45m, beating the consensus of $42.48m. It also beat guidance of between $41m and $43m by 14%.

Q2 Financial and Key Metric Highlights:

Revenue: $48.5m (up 59% Y/Y)
Percent of Recurring ACV: 93%
End of Period (EoP) Customer Count: 855 customers (up 17% Y/Y)
The net dollar retention rate for the quarter: 125%
Net dollar retention rate with win-backs: 127%.
Gross margin: 48% (up from 35% Y/Y)
Non-GAAP Gross Margin: 52% (up from 36% Y/Y)
Cash and Equivalents: $458m

Will Marshall, Planet's Co-Founder, CEO and Chairperson, said:

Planet’s results for the second quarter exceeded expectations across the board and demonstrate the continued acceleration of our growth rate and robust demand for our unique Earth data solutions,
In addition to the strength of our revenue and gross margin expansion during Q2, we’re also pleased with the meaningful increase in net dollar retention rate, which we believe demonstrates that our investments in product and customer success are yielding results.

Ashley Johnson, Planet's CFO, added:

For the second quarter of fiscal year 2023, we delivered $48.5 million in revenue, a growth rate of 59% year-over-year, expanded Non-GAAP Gross Margin to 52%, and ended the quarter with $458 million of cash, cash equivalents and short-term investments. Q2 was an excellent quarter for Planet, and we’re pleased with the continued momentum that we’re seeing in the business.

Planet Labs Q4 Financial Outlook

In Q4, Planet expects revenue to be between $50m and $54m, representing 40% Y/Y growth at the midpoint.
Non-GAAP Gross Margin is expected to be between 56% and 59%
Adjusted EBITDA is expected to be between ($21) million and ($16) million
Capital Expenditure as a Percentage of Revenue is expected to be between 8% and 11%
For the fiscal year 2023, Planet expects revenue to be between $188m and $192m, representing 45% growth at the midpoint
Non-GAAP Gross Margin is expected to be between 52% and 53%
Adjusted EBITDA is expected to be between ($60) million and ($56) million
Capital Expenditure as a Percentage of Revenue is expected to be between 8% and 9%

Planet Labs Business Updates

Roddenberry Foundation: Planet Labs and the Roddenberry Foundation have announced a partnership to launch a group of Planet's SuperDove satellites, decorated with fan art and quotes inspired by the Star Trek franchise, into space aboard a SpaceX Falcon 9 rocket during the Transporter-6 mission. The launch celebrates the legacy of Gene Roddenberry and the values of hope and inclusiveness promoted by Star Trek.

German Federal Government: Planet is providing the German Federal Agency for Cartography and Geodesy (BKG) with daily, high-resolution satellite data for a huge variety of use cases, including crisis response, environmental management, and nature conservation, as well as forest and agricultural monitoring.

Organic Valley: Planet Labs completed a successful pilot program with Organic Valley, the organic food brand and independent cooperative of organic farmers. By using Planet's satellite data, participating Organic Valley farmers accessed reports created by the cooperative regarding their pastures which helped them assess pasture quality, thereby supporting herd nutrition and contributing to sustainable agricultural practices like regenerative rotational grazing.

NMSLO: The New Mexico State Land Office further expanded its relationship with Planet. Using road change detection analytics, the NMSLO has been able to detect roads created on protected land and has identified trespass violations resulting in up to $1 million in fines thus far. After the devastating beginning of the 2022 wildfire season, the New Mexico State Land Office has begun using SkySat to monitor burn scars and severity, allowing the state to plan for potential flooding and debris flows along with mitigation efforts to restore the land.

Supporting Ukraine Response: Planet Labs supports critical efforts in multiple areas by providing imagery to governments, aid and relief organizations, think tanks and the media.

NASA Harvest: NASA's food security and agriculture program used Planet data to complete a country-wide assessment of grain health in Ukraine and its effect on global grain supplies. As of August 2022, the Harvest team found that more cropland than was initially expected has been harvested and planted along the Russian-occupied and Ukrainian-held territories. The team is also currently estimating a higher production out of the region than other publicly-sourced estimates.

NASA CSP: Planet also supports NASA's Communication Services Project with SES Government Solutions and Telesat Government Solutions. Planet hopes this will further build its relationship with the agency and accelerate the deployment of low-latency solutions for its customers.

Windward: Maritime AI company Windward, when combining their AI-powered behavioral analytics models with Planet's daily imagery, found vessels engaging in dark activities and ship-to-ship (STS) operations in the Kerch Strait in June 2022 as part of what appeared to be a coordinated effort to launder grain allegedly stolen from Ukraine.

PL Stock Financials

Over the past year, PL stock has traded between $3.70 and $7.52. Today it trades at around $5. Year-to-date, the Planet Labs stock price is down -16%, while the S&P 500 is down by -19.9% over the same period.

Eight FactSet analysts have a consensus Buy rating on PL stock with a target share price of $9.38.

PL stock has a price-to-book-value (P/BV) of 2.3 and does not come with a shareholder dividend (what is a dividend?).

Planet Labs PBC Growth Potential

Planet Labs' growth strategy includes scaling existing verticals and expanding into new verticals. It invests heavily in sales and marketing to increase brand awareness among early adopters of geospatial data, including Civil Government, Agriculture, Defense & Intelligence, and Mapping.

The company also intends to invest in software engineering teams to develop solutions to address use cases in emerging markets such as Energy & Infrastructure, Finance & Insurance, and Consumer Packaged Goods.

Additionally, it hopes to leverage its open data platform with specific vertical partners to accelerate its data and analytics usage across broader audiences.

With climate change, war and supply chain issues creating a variety of reasons to monitor the planet, the potential scale of growth is massive.

PL Stock Risks

Planet Labs has a limited operating history as a public company.
Its future success depends on its ability to retain and attract new customers.
Inflation and higher interest rates could weigh on input costs for R&D, marketing, and satellite build costs.
The risk of a recession could cut access to capital market funding and suppress the PL share price.
Planet Labs' cash equivalent and investment portfolio is invested in preserving its capital access. This generally consists of money market funds, commercial paper, and corporate and US government debt securities. Volatility in the global financial markets can negatively impact the value of its investments.
Companies and organizations like SpaceX, Google, and NASA have the resources to create their satellite imaging department.
Competitors and similar companies to Planet Labs include Zhuhai Orbita Aerospace Science & Technology, BlackSky Technology, Orbital Insight, Space Dynamics Laboratory, Millennium Engineering and Integration, SSL, Maxar Intelligence and EarthDaily Analytics.

Is PL Stock a Good Investment?

Planet Labs stock is operating at an exciting time in a growing sector. This makes it an intriguing stock to watch.

The company has a solid business model with an impressive customer base and high demand for its services. Nevertheless, its share price is at risk of volatility as early investors are only too aware.

Growth stocks are hard to value, particularly during a bear market period of uncertainty. But its growth potential is encouraging, as are its recent contract wins and varied customer base. It also has the potential to become a lucrative acquisition target as one of its high-profile customers may choose to snap it up.