Planet Labs: consolidates, benefits from more partnerships and wins (NYSE: PL)

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Planet Labs PBC (NYSE:NYSE: PL) is a leading provider of satellite imagery and geospatial analysis globally. The company has a strong position in the market and is well positioned to respond to the growing trends of digitalization and sustainable transformation of the global economy. Planet Labs was able to capture a large share of this market by developing more satellites and manufacturing them one of the largest fleets of Earth observation satellites in the world.

Although the company is yet to show positive results, it has a growing number of customers and its business model remains a key part of watching the planet. This unlocks huge upside potential with positive insider trading from management. This stock is attractively priced close to its book value per share of $2.37, making it an attractive buy at its further downside.

Business background

PL offers a variety of data products to customers in the agricultural, energy, government and other industries who need high-resolution images from space to gain a new perspective on the world. PL’s ambitious goal is to make Earth Observation data accessible and inexpensive not only for government but also for businesses, and give them in-depth information that helps them better understand our planet’s resources. .

As of this writing, the company has been able to expand its customer base and now serves over 800 customers, up from 700 in January 2022. These customers include major commercial and government agencies around the world. PL closed its first quarter of 2023 with an exceptional net dollar retention rate of 104.6%, compared to 93.2% compared to the same quarter last year, which translated into revenue increasing by $139.4 million. This was accomplished by launching more satellites into space. PL currently owns over 200 Earth observation satellites, making it one of the largest fleets of Earth observation satellites in the world. It is much better than its counterpart, Maxar Technologies Inc. (MAXR), which has only 81 satellites in low Earth orbit.

PL also released an exceptional product update in April this year with its next-generation high-resolution satellite called Pelican, which is expected to launch in early 2023.

Pelican satellites are designed to provide imagery up to 30 centimeters resolution, low latency and fast revisit, 12 times per day worldwide and up to 30 opportunities at mid-latitudes, revisit rate without previous. As with all satellites designed at Planet, we are aiming for a payback period of one year or less for the Pelican, a reflection of our agile and cost-effective aerospace capabilities. Source: Q1 2023 Earnings Call Transcript

The Pelican has greater accuracy down to 30cm and is expected to outperform its Skysat satellites with 50cm resolution. It is also built with reduced latency for faster terrestrial data transmission and a higher daily revisit rate of up to 30 captures per day.

New partnerships and contracts

PL: Massive TAM

PL: Massive TAM (Source: Planet.com)

I believe PL is poised to capitalize on its $129 billion TAM with its growing in-orbit satellite fleet, improving customer base and meaningful partnerships in the agriculture and energy industry, like with Bayer and SynMax.

Although the competition between MAXR and BlackSky Technology Inc. (BKSY) remains a question for the company, they have all secured Electro-Optical Commercial Layer (EOCL) contracts from the National Reconnaissance Office (NRO). This resulted in a guaranteed profit for PL as shown below.

The EOCL award is Planet’s largest contract to date, and we are delighted to have been awarded a firm fixed price contract of $145.9 million over an initial term of up to five years, of which $89 million dollars for the first two years. This first award dramatically increases our revenue visibility by nearly doubling the backlog of contract revenue we had on April 30. Through EOCL, Planet will provide planetary range monitoring, sky mapping tasks, and archive access to the US government. Source: Q1 2023 Earnings Call Transcript

As of Q1 2023, PL has $152.4 million outstanding performance obligations (71% to accrue within 12 months) on its balance sheet and with its $145.9 million EOCL contract, I believe it remains liquid and stable in the current environment of high inflation. .

Management released more conservative figures

Despite this positive catalyst, management cut its upper outlook for fiscal 2023 revenue from $170-190 million to $177-187 million. There is also an update on its non-GAAP gross margin of 43%-50% to 47%-49% and Adjusted EBITDA loss of ($75)-(50) million to ($70)- ($60) million for FY2023. I think management is trying to be more conservative and looking at their lower range target they’ve actually improved, especially looking at their estimated revenue and its non-GAAP gross margin. This leaves PL with potential revenue growth of an exceptional 34% year-over-year and a gross margin potentially higher than MAXR’s current non-GAAP gross margin of 45.99%.

Warning: still unprofitable

PL is still facing a negative result this first quarter of 2023. In fact, it generated ($44.4) million compared to ($29.3) million in the same quarter last year. However, with its disappointing outlook for FY2023 Adjusted EBITDA of around $70 to $60 million from the $41.05 million recorded in FY2022, this makes PL unattractive and l one of the reasons it has fallen more than 30% from that figure. top of the year.

On the positive side, in addition to its previously mentioned product upgrades and meaningful partnerships, PL is also exploring new solutions to ESG risk with Moody’s. Improved brand awareness due to the Ukraine conflict, as quoted below by management, will help PL maintain double-digit growth over the next five years and hopefully see a shift in the trend of its operating margin.

We work with and provide data to nearly 30 NGOs and intergovernmental bodies that support a number of humanitarian operations in Ukraine. These include the evacuation of civilians and planned clearance operations, conducting building damage assessments, monitoring alleged human rights abuses and attempting to mitigate and measure the impact on food supply. Source: Q1 2023 Earnings Call Transcript

PL is relatively cheap compared to its peers

PL: relative rating

PL: relative rating (Source: Data from SeekingAlpha. Prepared by InvestOhTrader)

BlackSky Technology Inc., Astra Space, Inc. (ASTR), Satellogic Inc. (SATL), Virgin Orbit Holdings, Inc. (VORB), Maxar Technologies Inc.

Just looking at the image above, we can assume that PL offers more upside potential than its peers. Examining its forecast EV to Sales ratio of 3.87x and median of its peers of 5.27x shows that it is one of the cheapest companies to date. Additionally, PL is trading at a P/S ratio of 4.23x and analysts estimate a P/S of 2.80x for FY2025. Comparing these figures to the median of its peers of 9.79x and its P/S of 40x for FY2022, I think PL is undervalued and ripe for at least a 1x price return. Using the $8 street price target as an initial target seems reasonable, especially given the current global economic downturn due to rising inflation.

Although MAXR seems the cheapest among its peers in terms of multiple P/S and EV/Sales, considering the balance sheet makes PL a safer company, as shown in the image below.

PL: relative rating

PL: relative rating (Source: Data from SeekingAlpha. Prepared by InvestOhTrader)

MAXR has 1.56x debt to equity, while PL has only 0.02x. This is thanks to PL’s low total debt of $9.5 million. Looking at the current ratio, ASTR seems to be the winner with its 7.39x, followed by BKSY and PL. To sum up, I think PL is undervalued relative to its peers and has better liquidity suited to today’s macro uncertainties.

Consolidation above $3

PL: weekly chart

PL: weekly chart (Source: TradingView.com)

The chart above clearly shows how much the value of PL has fallen from the 2021 highs. It is currently consolidating at around $3 which I believe is a strong support area to watch. A breakout of its 20-day simple moving average may imply short-term bullish price action and potentially form a double-bottom reversal pattern. PL’s MACD indicator remains below the zero line but above the signal line, indicating that the bulls are gaining ground.

Final takeaways

As we grapple with the negative sentiment of a slowing global economy, investing in an unprofitable company like Planet Labs carries high risk. Nonetheless, the company’s bottom line is strong and its moat in planetary surveillance is growing as its industrial services improve. With $484.5 million in cash and cash equivalents and $9.5 million in total debt on the balance sheet, I believe PL is very liquid and ripe for a significant acquisition.

PL: positive insider trading

PL: positive insider trading (Source: Finviz.com)

PL’s improved gross margin outlook is something to be welcomed, especially in the current macroeconomic environment. It also benefits from positive insider trading, as shown in the image above, which serves as a positive catalyst for the company. PL’s sustained revenue growth and good liquidity make this stock worth buying at current levels.

Thanks for reading and good luck!