Planet Labs (PL) stock news, risk & analysis

Market Cap: $625.1M TTM revenue: $228.5M YOY return: +5.94%	CEO: Will Marshall Cumulative pay: $18.9M Shareholder value created: -$2.1B	Forecast effort: C Forecast accuracy: A

After building its first satellite in a garage in Cupertino, Planet Labs operates the largest commercial constellation of imagery satellites in the world. This is the type of story easy to root for. Planet went public on prospect of sustained high double digit revenue growth, and during its first year trading largely met its targets. But have you heard a Shinkansen screeching as it looses momentum pulling into Tokyo station? Then you can relate to what happened to Planet’s previous high speed growth. At current burn rates, Planet has enough cash and short term investments to make it into 2026 without needing more capital. Will Planet pull cash flow positive in time? Or will they require more money or be forever unprofitable?

2 Minute Version

• Planet Labs manufactures in-house and operates approximately 180 “Dove” satellites offering three to five meter resolution. Planet additionally operates 21 “SkySats” with 50 cm resolution.
• Planet boasts a broad customer base (1,018) and highest reported revenues ($220.7M in FY2024) in satellite earth surveillance sector (over 2x that of BlackSky).
• Planet will replace its SkySats with “Pelicans” offering 30 cm resolution, the first of which launched in November 2023. Planet also in August 2024 launched its first hyperspectral “Tanager” satellite (approximately 2 years behind schedule).
• 45.7% YoY revenue growth in FY 2023 (ending Jan 31, 2024) retracted to 15.4% growth YoY in FY 2024.
• FY 2024 domestic-sourced revenue grew 0.97%, compared to 74.6% growth in FY 2023 (original analysis).
• Revenue-per-customer dropped since peaking in 4Q 2023 (Nov 2022-Jan 2023)(original analysis).
• Last fiscal year Planet laid off 117 employees and finished the year with $140.5 million loss and $298.9 million in cash and short term investments. This year in June Planet let 180 more employees go.
• To be profitable, Planet must either cut more costs, increase sales or margins (assuming they hit positive EBITDA by 4Q this year as forecasted), or even better do all of the above
• Since its founding in 2010, the earth imagery market has become much more crowded; Planet now faces competition from multiple contenders including Blacksky, ICEYE, Alba Orbital, Umbra, Capella Space, Satellogic, Satrev, and others.
• Satellites launched by well-managed (i.e. not Satellogic) firms located in countries with lower labor costs (i.e. Spacety and Chang Guang in China, and Hancom in Korea) will challenge Planet’s international sales channels in the future. International sales is currently Planet’s only growing market and comprises majority of revenue (original analysis).
• Even accounting for the large pile of cash on hand, without huge business changes, long term prospects of Planet appear grim and risky.

Examining Financial Disclosures

Planet entered market with a ton of cash, claiming raised $590 million from its SPAC deal. The initial business plan on which its SPAC consummated called for consecutive years of high revenue growth providing a “Clear Path to Profitability” with forecasted net positive EBITDA and positive adjusted free cash flow reached in FY 2025 (the year ending January 31, 2025, i.e. this year). That path no longer looks so clear, with revenue growth stunted and reoccurring looses eating away cash reserves.

2022 revenue jumped 45.7% to $191.3 million in 2023, but then only 15.4% to $220.7 million in FY 2024. However, for the past five years Planet consistently has lost $120-160 million per year, specifically most recently losing $140.5 million in the fiscal year ending January 2024. As a positive, and rare among its peers, Planet has essentially no debt. But with $298.9 million left, at current rate Planet Labs has a little over two years left of cash reserves left. Will Planet decrease its cash burn and turn the ship around in time?🤔They are trying, reducing costs through their well-publicized layoffs.

Planet has used two related internal metrics to measure customer growth. One is Net Dollar Retention Rate (NDRR) – basically measuring how much contracted customers ordered from Planet vs how much they were contracted to order at year’s start. The other is NDRR plus winbacks – a measure of NDRR plus inactive customers becoming active again. For both, the higher the percent above 100, the more customers are increasing spend on Planet’s products.

By Planet’s on metrics, FY 2023 (ending Jan 31, 2023) was a banner year, with customers contributing more spend on Planet’s products that originally contracted by approximately +25%. No wonder that year saw +45.7% growth. But last year (FY 2024) was a different story – Planet’s worst on record since going public with active customers buying just 1% more than contracted at year’s end.

What happened?

While not entirely clear, Planet’s SEC filings offer hints. I suspect Planet now faces stiffer competition than before and is slashing prices to remain competitive. Planet’s imaging offering is not unique – small satellites with a cameras pointed down. My mom and I could likely design and manufacture our own, launch a constellation and start selling data. Investors should be grateful to Planet for the amount of information they make available in their SEC filings, as they consistently have shared their customer count. Dividing Planet’s number of customers (at quarter’s end) by the same quarter’s revenue should roughly provide average revenue per customer. Measuring this by quarter, Planet sure enough peaked in Nov 2022-Jan 2023 and has been down ever since. Either customers are ordering less, or Planet cut its prices, or both.

Actually the above two graphs reveal why Planet’s growth stunted in 2023: Planet’s large double digit growth in 2021-2022 was being driven more by customer spend increasing than by Planet singing up new accounts. So at the end of 2022 when customers began spending less on Planet’s services, revenue growth took that hit.

With revenue-per-customer lower, Planet must win even more customers than before to sustain same growth. However, as existing competitors launch more satellites and new competitors come online, this will become more challenging. Planet is pushing to differentiate itself through software and AI tools — this really seems Planet’s only option. Afterall, what can a government or company do with raw images? Software and AI extracts usable information from image sets providing customers with analytics or alerts. For Planet, this likely comes at high cost: HQed in San Francisco with mean software engineer salary of $210,000, Planet likely pays >2x more than other domestic competitors. And likely 4-5x more than competitors in Japan and Korea. (Planet also markets the advantage of having the largest historical earth imagery library dating back to 2009, but it is unclear how much unique revenue is driven from historic imagery. I guess not much.)

FY	US-sourced revenue	Foreign-sourced revenue
2021	$61.4	$51.7
2022	$56.0	$75.2
2023	$97.8	$93.5
2024	$98.7	$122.0

And another thing that will become relevant soon below. Notice the source of revenue, U.S. vs rest of the world. Planet’s fraction of total revenue attributed to outside of the United States has grown faster and overtaken domestic-revenue. As as of last fiscal year, foreign revenue comprises 55% of Planet’s total revenue. The majority of Planet’s growth has been securing foreign sales. This is surely good short term. But it exposes Planet to long term risk when upcoming cheap foreign competition comes online, competitors that cannot sell to the U.S. government but can compete in foreign markets.

Management guidance scorecard

Prior to IPO in 2021, Will Marshall, Planet Labs co-founder and CEO, predicted over 40% yearly revenue growth (CNBC video here) for the next 5 years. Needless to say, didn’t happen.

After going public, Planet for a period consistently each quarter provided guidance forecasting revenue and EBITDA for the following quarter and end-of-year. In 2023 Planet management in two quarters provided investors overly rosy guidance that Planet failed to deliver. Then earlier this year in 2024 Planet management stopped giving end-of-year revenue guidance. (🚩) This should be concerning for all the obvious reasons – management appears to lack confidence even in their own assessment of current year revenue.

CEO compensation

CEO Will Marshall, CFO Ashley Johnson, and Chief Strategy Officer Robbie Schingler, Jr. made it rain in 2021 and 2022. In 2021, when Planet went public on those business forecasts it failed to meet, these three collectively received $21 million in total compensation. Commensurate with actual company performance, compensation pulled back to a more “modest” half mil to $1.5M each in 2023. But in 2024, CEO Will Marshall earned 10X more than the prior year, receiving $6,250,741 in pay. This was largely from a $5.75M stock award, but Planet also gave CEO Will Marshall a 25% base salary raise.

No doubt CEO Marshall and other Planet executives want to re-live their 2021 and 2022 pay. With all the stock and stock options they have received, they have every financial incentive to turn things around at Planet. So far, no dice. Just a lot of pay.

Also, as a shareholder, be careful. If you read Planet Lab’s SEC filings, you will see this:

Shares of our Class B common stock have 20 votes per share, while shares our Class A common stock have one vote per share. William Marshall and Robert Schingler, Jr. (the “Planet Founders”) hold all of the issued and outstanding shares of our Class B common stock. Accordingly, the Planet Founders hold over approximately 62% of the voting power of our capital stock.

If shareholders are not fond of CEO Will Marshall or CSO Robbie Schingler leading the company, tough break. These two control the majority of votes. This provision sunsets 10 years following Planet’s IPO when Class B shares convert to Class A. So don’t have high hopes for appointment of new executives and leadership change, even if Planet Lab’s future looks dark. This company will sink or swim at the helm of Will Marshall and Robbie Schingler, Jr.

Planet Labs outlook and risk assessment

Planet’s profitability prosects are tough and will get tougher. I recommend the following be considered before investing:

• Planet’s business of offering satellite imagery is hardily unique. With launch costs going down and projected to decease another 10x thanks to Elon Musk’s Space-X, anyone wanting to launch a 100 3U CubeSat constellation will likely need less than $500,000 to cover launch costs, The barriers to entry are shrinking considerably. Before, to start a earth surveillance satellite business like Planet, access to US levels of capital was needed. Won’t be anymore.
• Competitors from foreign markets (Asian?) with much lower operating costs will offer imagery providing extreme price pressure to Planet. In Japan Axelspace has started launching its constellation with 9 satellites up and plans for 50; its average salary for engineers is reported as 7M yen per year (about $45,000). In Korea Hancom InSpace launched its first, just ordered two more, also has plans for 50 total and its average salary is 53.9M Won (or $39,200). And Chang Guang in China already has launched 72 satellites. I don’t know enough to know if any of these specific companies will be the future, but it does seem that Planet will be extremely hard pressed to compete when for price of hiring five engineers its competitors can employee 20-25!
• Planet’s US government source revenue is likely more insulated for foreign competition, since the contracts are awarded only to US-based companies. (However note that Satellogic moved from BVI to Delaware just to be eligible for US government satellite surveillance contracts.) However, recall that Planet’s largest driver drive of revenue growth has been rest-of-world? That will be at risk.
• SpaceX’s Starship becoming fully reusable, launch costs coming down more, and Planet’s competitors surpassing them by number of satellites in orbit will take time. So it is possible Planet enjoys some short- or mid-term success before getting squeezed.
• Long term, Planet’s San Francisco rent and labor costs are just be too high to be competitive. Sure, they have laid off some workers but they require a much more competitive cost structure. Imagery costs are going down, not up. Once launching earth imagery small sats becomes commoditized (which it will), Planet without conducting major cost-cutting or business restructuring seemingly won’t have a chance to profitably offer competitive imagery services.

Planet Labs caters to those with the same risk tolerance as snake handling preachers in the South. However there they say if you really believe, no harm will come.

What to look from Planet going forward

With Planet’s next upcoming quarterly report, look for the following:

1. Planet issuing yearly revenue guidance again.
2. Revenue per customer growth again, like exhibited in 2021-2022. (Inflation apparently drove all prices up – except for Planet’s services which apparently during the same time went down.)
3. Increase in U.S. sales vs rest-of-the-world which would be taken as an indicator of stronger U.S. government sales. Or even better more detailed disclosures by Planet indicating U.S. government revenue is growing.
4. Lower cash burn rate and an actual strategy to make this sustainable long term. If Planet cannot make this happen, they will need more money in 2026 which will either cause them to take on debt or conduct a dilutive equity raise.

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