Tomorrow.io Stock: A Weather Intelligence Platform

We’ve covered hundreds of startups over the years at Nanalyze, and many of them have started going public in what has become a record-breaking year for IPOs. Quite a few of these companies have chosen to go through the back door to the public markets through reverse mergers with special purpose acquisition companies (SPACs). In fact, more than 60% of the 939 IPOs in 2021 (and counting) came via a SPAC deal.

Number of U.S. listed IPOs each year. Credit: WSJ
Credit: WSJ

At this point, we’re no longer surprised by the random companies that opt to go that route for whatever reason. Maybe they need to keep the lights on. Or want to scale exponentially to accelerate lackluster revenues. Or maybe the company is a software as a service (SaaS) operation that suddenly wants to launch a fleet of satellites into space.

Yes, that’s a little foreshadowing on the new Tomorrow.io stock offering.

About Tomorrow.io Stock

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Founded in 2016, Tomorrow.io was until earlier this year known as ClimaCell, a Boston-based startup founded by three Israeli military veterans out of Harvard and MIT who felt that current weather forecasting kinda sucks. That was especially the case for CEO and co-founder Shimon Elkabetz, who claimed he nearly died due to a faulty weather forecast while flying as a pilot for the Israeli Defense Forces. The company has raised nearly $184 million, including a $77 million Series D back in March. Most of the investors are venture capital firms, along with companies like JetBlue and Ford, which are also customers that represent a key market (transportation) for Tomorrow.io. SoftBank is another marquee name. 

Pine Technology Acquisition Corp. (PTOC) is the SPAC of choice and was originally created with the intent of acquiring an insurtech startup, but settled for Tomorrow.io. Insurance is another market served by the company’s weather-forecasting technology, so it’s not too big a stretch in the SPAC space. The deal should net Tomorrow.io $420 million, which includes $75 million in additional private equity from current investors SoftBank and JetBlue, as well as an energy-focused VC called National Grid Partners and SB Energy Corp, a SoftBank subsidiary developing renewable energy. And one new investor: Koch Industries, a massive conglomerate known for its refineries and chemicals businesses that has been on something of a SPAC spending spree in an apparent attempt to beef up its tech portfolio.

If no one bails before the deal goes through next year, Tomorrow.io would be valued at $1.2 billion on just $11 million in estimated revenue. You can do the math using our simple valuation ratio but the short answer is that Tomorrow.io stock would be way overvalued on the current metrics with a ratio of 109. (We don’t invest in anything over 40.) Of course, there’s a plan to massively accelerate revenues and it involves launching satellites, a very capital-intensive activity for a SaaS company.

A Weather Intelligence Platform

This is definitely a different trajectory from the weather-forecasting startup that we profiled back in 2018. At the time, ClimaCell had developed a novel technology that uses virtual sensors to create hyper-local forecasts, particularly around precipitation. Specifically, its algorithms analyze how ground-level precipitation and other conditions affect signals from cellular networks and all sorts of connected devices. This technology – now dubbed “weather of things,” a play on Internet of Things – is still part of the overall technology platform

Elements of the Tomorrow.io weather intelligence platform.
Credit: Tomorrow.io

Tomorrow.io also incorporates real-time data from existing numerical weather prediction models such as those from NOAA into its own proprietary model that leverages artificial intelligence and machine learning to “forecast weather with a high degree of accuracy.” This isn’t just some fancy weather app to help plan your next picnic, though there is a free mobile version for just that purpose. Instead, the technology is branded as a “Weather and Climate Security Platform”  that “delivers operational weather insights for global customers across a broad range of industries, including aviation, energy, insurance, on-demand companies, professional sports and venues, and logistics, as well as government agencies around the world.”

In other words, Tomorrow.io is spinning weather forecasting into business intelligence, in much the same way that companies leverage geospatial intelligence to generate alpha. Let’s take a closer look at what this means and how AI-powered weather forecasting makes money.

The Business Case for Better Weather Forecasting

The Tomorrow.io platform essentially does three things. First, it provides hyperlocal weather data and forecasts that the company contends are better than government-backed products (without providing, as far as we know, data to back up this claim). Second, its software interface can be configured to meet each individual customer need at scale through automation. Third, it offers business insights and recommendations for actions. For example, farmers will know when to plant or irrigate based on historical analyses, while electric vehicles owners might get alerts about how weather along an intended route might affect battery range. 

In the bigger picture, Tomorrow.io says its platform can help companies and governments save money by providing more accurate weather forecasts. Over the last 20 years, the United States alone has experienced more than 300 weather and climate disasters where damages and costs exceeded $1 billion, according to the NOAA National Centers for Environmental Information. The sum total is somewhere north of $2 trillion. In 2021, there have been 18 weather and climate events, not including this week’s devastating tornado outbreak in the center of the country. How much of this destruction could be offset by better weather forecasting is certainly up for debate, but Tomorrow.io offers a few case studies illustrating how it can add value at an enterprise level.

Billion-dollar weather disasters in the United States in 2021.
Colorado looks like a safe place to live. Credit: Tomorrow.io

An unnamed U.S.-based airline (likely JetBlue, given this was an example from three years ago) has saved as much as $2 million in de-icing operations, which can only occur when winds are below 40 miles per hour. The ability of Tomorrow.io to provide accurate wind forecasts meant the airline has avoided canceling as many as 70 flights because it could de-ice planes based on predicted weather windows. In India, a fast-approaching cyclone was threatening the power grid. The company’s Weather Intelligence Platform identified three of the most at-risk towers and a utility company pre-positioned crews at all three sites, potentially avoiding a prolonged power outage to an estimated 100 million people. In a third case, an insurance company uses weather intelligence data to warn customers, through its app, of potentially damaging hail storms, as a way to cut down on claims.  

Tomorrow.io airline use case.
Airline use case. Credit: Tomorrow.io

Ever hungry for more data to improve its Weather Intelligence Platform, Tomorrow.io is about to go from capital light to capital heavy by launching its own radar weather satellites.

Radar Weather Satellites

Tomorrow.io is proposing to launch a constellation of about 30 small radar-equipped satellites to provide high-resolution weather products with the ability to refresh forecasts hourly. You may remember that space-based radars can penetrate clouds and see at night, unlike optical-based satellite sensors, which makes them especially useful if you want to track something like a hurricane. Tomorrow.io recently tapped two space startups – Astro Digital and Muon Space – to help develop the specialized satellites. 

The dream is to provide this service to the five billion people worldwide who live outside of ground-based radar coverage and therefore lack reliable weather forecasts, which apparently makes it hard for insurance companies to sell them policies. The data from the new constellation will feed the models and improve the platform’s ability to provide customers actionable insights, as Elkabetz pitched it during the investor presentation last week. “We are confident that we can drive a revolution in weather forecasting and climate science,” he said.

Should You Buy Tomorrow.io Stock

It’s a bold plan – not surprising given the company is run by former Israeli soldiers, some of the most bad-ass warfighters in the world – but also an extremely risky one. There’s no word on how much this project is going to cost, but certainly it relies on closing the deal with PTOC. There are other companies already deploying radar-based satellites that could potentially provide the data, including another SPAC we recently covered called Terran Orbital. Being a vertically integrated company is great and all but this move to a capital-intensive strategy may end up being a real drag to the company’s bottom line.

Tomorrow.io dashboard
Tomorrow.io dashboard. Credit: Tomorrow.io

Let’s briefly talk about that. Tomorrow.io currently has 120 enterprise customers who pay an ongoing subscription to access the platform based on the number of monitored locations or assets they have. There are at least three slides that each offer slightly different numbers on the company’s annual recurring revenue, but as we noted before, it’s somewhere in the $11 million range for this year. We generally like these kinds of recurring revenue models that usually have great profit margins, but we need to see more data, which won’t happen until the SPAC is completed next year. Pass.

Conclusion

And there’s the rub: More and more SPACs are imploding in one way or another. And that’s been especially true for space SPACs, which Tomorrow.io sort of qualifies as now. Space News recently reported on some of those struggles, including the fact that Spire Global (SPIR), which used small satellites to track ships and weather, had a redemption rate of 90% before the deal was finalized. (That means $246 million instead of the planned $408 million.) Investors have been punishing the stock lately as Spire shares are in freefall.

On the other hand, the leading satellite company in geospatial intelligence, Planet (PL), took home almost the entire $545 million that was on the table. Planet stock hit the market last week and dropped -17% in just three days, so we’ll be taking a closer look soon at one space company that could find a home in our Disruptive Tech Stock Portfolio.

If the deal does go through for Tomorrow.io, it will trade on the Nasdaq under the ticker symbol TMW.

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