Planet Labs: Government Spending On Space Could Signal Launch (NYSE:PL)

Planet Labs (NYSE:PL) is a company that primarily offers high frequency geospatial data from their own constellations of satellites, available to customers through their online platform. One of many 2021 SPACs that since fell to earth, the stock has plummeted from an IPO price of $10. While too much hype dominated then, the opposite problem of unchecked pessimism, plagues the stock today. While there are reasons to be wary, there are catalysts on the horizon including recent Space Force developments, which at this point it is hard to believe are fully priced in.

Satellite Overview

Doves, first launched in 2015 and the most numerous in the constellation, are shoebox sized and have a resolution of 3-5m per pixel. SkySats are larger, around minifridge size, have a higher resolution of 50cm and also have propulsion. These constellations work together, with the Doves being used to image a large area initially and the SkySats to focus in on a point of interest. The latest satellite design is the Pelican, which features lower latency, an even more detailed 30cm resolution and more imaging opportunities daily, up to 30 in mid latitude zones. Currently in a demo phase, the first operational satellites are expected within the next 12 months. According to management, the value add from these improvements that Pelicans offer will translate to higher pricing.

A further addition to the constellation is the Tanager, a hyperspectral satellite that will measure energy between the visible and shortwave infrared wavelengths. The first Tanager is planned to launch later this year, with applications in verticals Planet is already active in such as agriculture, defence, mining and civil government.

Q4

Steady growth continued in this quarter with revenue for the quarter coming in at $58.9 million, 11% YoY growth and according to management driven by the defense and intelligence segment which experienced 20% YoY growth. Revenue growth for the year was higher still, at 15% and $220.7 million total revenue, while the final quarter of this year is being targeted for EBITDA profitability.

The company can also now boast of 1018 customers, in Q4 2023 management reported 882, so that’s around a 15.4% increase annually. In this industry that should be promising for future growth assuming many of these early contracts will later scale as trust builds.

It’s also noteworthy that FY 2025 guidance was not given, apparently owing to uncertainty around the timing of large contracts, so there could be a surprise here, whether it is to the potential upside or downside it is hard to say, but it seems like a cautious move.

Space Force

Founded in just 2019, Space Force is the smallest branch of the armed services but will almost certainly grow as space becomes increasingly contested by governments and militaries worldwide. The budget is certainly growing as in March, Congress approved a $29 billion budget for Space Force in 2024, representing an over 10% increase from 2023’s budget.

This is a particularly interesting catalyst for Planet Labs because this month it revealed the Commercial Space Strategy, including a push for “hybrid space architectures”, which represents a greater reliance upon and integration with the commercial sector. One specific mission area highlighted in the report that Space Force is interested in utilising the commercial space sector for is ‘Tactical, Surveillance, Reconnaissance, and Tracking’ (TacSRT). The single largest vertical for Planet is defense and intelligence so this is likely to have a significant impact on opportunities to win lucrative contracts. The strategy even includes room for the private sector on tasks traditionally performed by government agencies, as part of a general drive for resiliency.

Planet Labs is not wholly reliant on government defence agencies though, it has a very well diversified mix of customers, which means low risk compared to many companies operating in the industry who are highly dependent on defence agencies in the American government for contracts and thus overexposed to fluctuations in the defence budget or changes in specific agencies.

Data Analytics, Solutions

Planet Labs is currently a company that is primarily about selling data. To reach profitability faster, it needs to transition towards selling a lot more solutions and data analytics alongside that data. In the latest earnings call, management admitted as much, having identified an increased demand for solutions. Competitors broadly have higher margins, as well as higher growth rates you can see below, areas Planet might catch up on by integrating more solutions into their offering.

There is some development on this front, the recently launched Field Boundaries Analytics being one example, a product for analysing crops for the agriculture sector enabling better yield estimation. This type of effort is a step in the right direction but seeing a larger scale push into this area would be ideal.

In terms of AI, data is again part of the core advantage, as the company has large proprietary datasets dating back to 2009 that will supposedly be valuable for training AIs. In terms of actual solutions that utilise AI though, statements from management make it hard to tell to what degree AI is being implemented and what degree it is part of the current unavoidable AI lip service many companies are paying. Development certainly seems to be in the early stages, with some reliance on various partner solutions. For example, a recently won contract with the Navy’s Naval Information Warfare Center will see the NIWC combine Planet’s data with AI solutions from SynMax.

Financials

The company’s balance sheet compares very favourably to competitors with very low debt, of which there is no long-term debt. Comparatively, the peers chosen are quite highly leveraged, meaning Planet Labs has more flexibility with regards to future financing options. A current ratio of 2.71 indicates the short-term debt they do have is easily covered and also on the high end relatively. Cash wise, the company also compares well, at $298.91 million including short-term investments, which should provide considerable runway, especially given the current progression towards profitability.

The company pays high levels of stock-based compensation, with quarterly figures at Planet Labs resembling some competitors’ annual figures. BlackSky’s (BKSY) stock-based compensation for 2023 totalled under $11 million for reference, though the current market capitalisation is also under half that of Planet Labs. This level of expense has been and will inevitably slow down the journey to a positive EBITDA and profitability.

Valuation

Taking a brief look at the EV/Sales metric, Planet Labs’ multiple has trended down throughout the year and now looks cheap comparatively alongside these competitors. It is also over 39% lower than the sector generally, a considerable difference. The stock also trades around book value, currently at a trailing P/B of 1.01. Seeking Alpha’s Quant meanwhile is more neutral on the company with a hold rating.

Other Risks

Government spending, as put forward in this article, might be a big boost to the stock but can also be subject to quite arbitrary fluctuations in the future too, which could impact the availability and size of contracts.

The stock has had a relentless downward momentum over the past year, which might be difficult to shake, investor sentiment seems fairly poor so there could definitely be more downside in the near term before a bottom is found.

Conclusion

Planet Labs stands to benefit from a powerful trend, the increased governmental interest in the commercial space sector a potential driver of sustained revenue increase in this vertical. The coming launch of new satellite models such as the Pelican, a healthy balance sheet and the relative valuation all make it tempting to start a small speculative position here. However, the stock faces some key challenges which could temper this view, with more progress needed on the development of solutions and value on top of data, as well as comparatively low growth compared to peers.