Planet Labs Stock After the Dust Has Settled
The biggest problem with SPACs wasn’t that they were structured to give retail investors the short end of the stick, it was that they didn’t provide enough information to make an informed investment decision. When Planet Labs (PL) filed their year-end results, requests came pouring in for us to revisit the company following our piece last year titled Why is Planet Labs Stock Falling Like a Rock?
When you’re critical of a company, most people assume you’re short. The remainder assumes you don’t have a dog in the race, but few can conceive of someone owning a stock and being critical of it at the same time. Feeling obligated to cheerlead stocks you hold is a flawed mindset being perpetuated by the Jim Cramers of the world who won’t recommend a great company at the best time – when their stock price is falling. Those that took the time to read our Planet Labs article to the end may have noticed this informative tidbit.
We’re holding a small position in the stock with no intentions to add until the financials are properly consolidated and a normal SEC filing cadence has been established.Credit: Nanalyze, December 2021
When we’re investors in a firm, we don’t grab our cheerleading pom poms and start waving them all over Twitter, we become even more critical about their operations. Today, we’re going to review the Planet Labs 10-K to see what insights we can uncover about a firm with information gaps and a promising value proposition.
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
Mining the Planet Labs 10-K
“Could you do me a favor and update us on your thoughts without any sarcastic remarks,” asked one lad on Twitter. We were puzzled by this comment. After publishing over 2,000 research pieces, regular readers know full well that our HR department doesn’t allow sarcastic remarks. After sarcasm, there are only two other things we can’t stand in this world: people who are intolerant of other people’s cultures, and the Dutch.
The original press release announcing year-end results for Planet Labs wasn’t enough. We need a proper 10-K to vet because what a company tells the SEC is all that stuff investor relations won’t tell you. For example, here are some questions we asked in our last piece:
Planet may have 740 customers, but how many are paying them more than $100,000 a year? How many are paying more than $10 million per year?
Perhaps the most useful information to be found in the newly filed Planet Labs 10-K surrounded their revenues.
Planet Labs Revenue Insights
Planet tells us that “For the fiscal year ended January 31, 2022, one customer accounted for 11% of revenue” so we know that at least one customer is paying them more than $10 million per year. And that’s about all the color we’ll get on what customers are paying, aside from this geographical breakdown which shows revenues from North America on the decline.
This means that existing customers are paying the company less, something that’s measured by a software-as-a–service (SaaS) metric called “net retention rate” which can be seen below for the first time across a three-year time frame.
EoP customer count refers to “customers with an active contract with Planet at the end of the reported period,” though we’re not given any breakdown regarding what an average contract size might look like. SaaS companies often break customers down into buckets based on how much they’re paying, then investors can monitor those buckets over time to see that existing customers are spending more. In the absence of that information, we can look at “New Dollar Retention Rate” which shows how much more money existing clients paid during the year (100% would mean they paid the same as the prior year). The second metric – Net Dollar Retention Rare including Winbacks – is a bit concerning as it “captures the value of customer contracts that resume business with Planet after being inactive and thereby provides a quantification of Planet’s ability to recapture lost business.” If your customers stop using your product, then your marketing team successfully convinces them to resume using it, just how valuable is that product to the customer? Successful high-growth SaaS solutions often sell themselves.
This last insight comes from the Planet Labs investor deck that accompanied the Fiscal 2022 earnings and shows that most of the company’s Fiscal 2022 revenues come from Defense & Intelligence (D&I) and Civil Government.
Commercial customers made up less than half of Planet Labs’ revenues in 2022. That percentage needs to go up if we’re led to believe that a $128 billion opportunity exists across multiple industries of which only 35% represents D&I and government.
If this market opportunity is indeed worth $128 billion, then the company with the biggest dataset will be in a good position to lead.
…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
Planet Labs Looking Forward
Planet Labs has 200 satellites taking pictures of the earth which represents tens of billions of dollars’ worth of value. But that value is only unlocked when customers open their wallets. If geospatial imaging is so incredibly useful, it should be selling itself. Planet talks about more investments in 2022 – sales and marketing, software, data science, and their next-generation high-resolution fleet, Pelican. That’s great, but after spending $700 million so far, we’d like to see stronger revenue growth than the 16% realized in Fiscal 2022. Based on Planet’s guidance, we can expect 29% growth for Fiscal 2023 at the lower end of the $170 to $190 million range they give.
We’re happy with that, but annoyed that the upper end of their range doesn’t quite match the $193 million we were promised in the glossy SPAC deck.
Be assured that we’re holding these management teams accountable to whatever promises they made when they were peddling shares at a superior premium to retail investors while Samir Nagheenanajar was promising us that SPACs were democratizing access to wealth for “the little guy.” (He’s now moved on to crypto.)
Buying Planet Lab Stock
We’ve already said we’re long, so that cat is out of the bag. As with any position we hold, we don’t sell unless our thesis has changed, and we don’t believe it has. Based on what we gleaned from the 10-K, we’re expecting the company to hit guidance for Fiscal 2023 and we’ll check back early next year. As for adding shares to our existing position, that’s something that only Nanalyze Premium subscribers are privy to. (Trade alerts are just one perk enjoyed by Nanalyze Premium annual subscribers.) Coming out of this analysis, we have some concerns around how useful customers are finding the Planet Labs platform to be. The company can alleviate these concerns by providing us with two missing metrics:
- Gross Retention Rate – shows the percentage of customers who renew their contracts year-on-year
- ACV customer buckets – shows the number of customers paying an annual contract value (ACV) of more than $50K/$100K/$500K/$1MIL per year (see example here).
Admittedly, most SaaS firms don’t provide Gross Retention Rate, but they usually provide ACV customer buckets, or sport Net Retention Rates of 120% or higher. As risk-averse investors, we’re wary about “build it and they will come” business models that overestimate the value of their product or service. It’s critically important that Planet Labs hits the aggressive guidance they’ve offered up for 2023 to show that demand for their platform is strong.
Time and time again we see companies provide information to the SEC that isn’t provided elsewhere. Since Planet Labs is a newly traded company, their first 10-K shows that they’re now able to report the required information to the SEC so that we can now make an informed investment decision.
We’re optimistic about the geospatial intelligence opportunity and see Planet Labs in a leadership position based on their “agile aerospace” business model and extensive historical data set. Now we need to see that customers are willing to pay for that service beyond just kicking the tires with a few proofs of concept. Provided nothing notable happens with Planet Labs during 2022, we’ll check back in 2023 to see if they met their revenue guidance.