Is The MOST Extraordinary Space Stock?
The past year has been a travesty for SPAC holders. Some reports claim almost 80% of SPACs are under water. It’s not a stretch to conclude SPACs were a vehicle brought to retail investors to drive hype and ultimately leave them as bagholders. But painting all SPAC companies with a broad stroke risks passing over the diamonds in the rough. One potential gem with a SPAC history is Planet.com, a data company that happens to be a play on space and satellite imaging.
According to the company:
We are a pioneer in “agile aerospace” — the rapid development and deployment of new space-based hardware and related software systems. This is similar to the agile software approach of releasing early and often to rapidly iterate capabilities, but applied to space.
Planet Labs 10-K
How Is Planet.com Rated?
With a name like Planet.com, you can imagine the company already has tailwinds related to sustainability and ESG on its side, and you would be right. Early investors in Planet.com include Steve Jurvetson, who was an early investor in Tesla and SpaceX.
Steve is one among many “smart” investors or research houses who are bullish on Planet’s potential. Among the ratings are:
- Ryan Koontz at Needham: $10.50 price target
- Noah Poponak at Goldman Sachs: $11 price target
- Daniel Ives at Wedbush: $10 price target
- Weston Twigg at Piper Sandler: $10 price target
- Michael Latimore at Northland Securities: $16 price target
- Josh Sullivan at Benchmark: $17 price target
- Jeff Van Rhee at Craig Callum: $15 price target
Why do the scales tip heavily in favor of bullish ratings?
After vetting Planet’s 10-K, the answer is clear: 740 customers, one of whom is responsible for 11% of revenues. That means a single customer is paying Planet more than $10 million annually.
Total revenues for 2022 came in at $131 million, which is close to the SPAC forecast. For those watching SPACs closely, few have hit their forecast numbers so Planet deserves to be spotlighted and praised for delivering on projections.
A Blot On Revenues
While revenues have grown from $95 million in 2020 to $113 million in 2021 and $131 million in 2022, there is some reason for concern under the hood. United States revenues have remarkably gone backwards from $61 million to $55 million over the past year. The growth in total revenues is primarily stemming from rapid Rest of World growth, which is up from $35 million to $65 million.
The firm’s net dollar retention rate, which measures whether existing customers are paying more or less, was reported as 108% in 2022.
92% of revenues are recurring, suggesting revenue predictability and stability is high.
For investors a focus should be on a little line item in the 10-K called Net Dollar Retention Rate including Winbacks. The line item alone should cause investors to shudder just a bit. Why would a product so powerful and compelling as the one Planet.com seems to offer require a marketing team to win back clients who have decided its value is not sufficient to stick around? We’ll keep an eye on this line item in coming quarters to see whether Planet has a naturally loyal customer base or one that needs some arm-twisting to stick around.
- 45% commercial
- 33% civil government
- 22% defense and intelligence
If you’re buying into Planet.com, however, this is just the tip of the market opportunity. The company sees a host of potential clients and industries being interested in its data, quantified as follows:
- Energy & Utilities $22B
- Forestry $8B
- Agriculture: $11B
- Defense and Intelligence: $16B
- Civil Government: $29B
- Industrial Supply Chain: $24B
- Sustainable Finance: $18B
What could drive customer adoption?
…we are producing over 100 times more imagery by area per day, than any other company. I think I estimated it about 10 times all other companies combined.
CEO and Co-founder of Planet Labs, Fiscal 2022 earnings calls
To The Moon and Beyond
Planet has 200 satellites taking snapshots of the earth daily. It just launched its next-gen high-resolution fleet, called Pelican. And management forecasts revenues to rise towards the $170-$190 million range in fiscal year 2023, representing 30-45% growth. Margins are forecast to rise to 43-50% and Capex is estimated to rise to 12-13%.
We can’t help but think after investing over $700 million to get this far, Planet should be able to grow revenues faster as word gets out about its value proposition. The latest “chatter” is about its data being useful to hedge funds, who will famously pay a pretty penny to get the slightest edge.
This under the radar stock that has fallen to levels technically defined as penny stock territory, yet could prove to be one of the biggest winners over the next decade.
To confirm it’s on the right track, we’d like to see ever more customers with annual contract values north of $1M per year, and a broader customer mix across industries. The company is hiring at a rapid rate, a positive sign that management is attempting to keep up with demand,
Conclusion
The geospatial intelligence opportunity that lies ahead for Planet is enormous. The company has multiple compounding moats given that it does not outsource its satellite fleet to other manufacturers, and it is capturing more data daily than its competitors.
Will customers pay for that data?
So far so good, but the jury is out still, and that’s why the risks are high… as will the rewards be if the model is proven over the next few years.
