Planet Labs PBC (PL)

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We Rate Planet Labs A Buy As The SPAC Merger Completion Looms
Dec. 07, 2021 7:40 PM ETPlanet Labs PBC - Class A (PL)11 Comments16 Likes
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Growth, Long-Term Horizon, Aerospace & Defense, Tech

Contributor Since 2021

Cestrian Capital Research, Inc is an SEC-registered investment research business, covering the space and tech sectors. If you like our work, sign up for our FREE newsletter, here: https://newsletter.cestriancapitalresearch.com
Summary
Planet Labs is likely to complete its merger with the SPAC shell DMYQ shortly.
This Google-backed Earth observation business features solid revenue growth, improving gross margins, and what looks to be a high level of support from SPAC shareholders.
It's early days for the stock as a public security but there's much to like about the business.
We rate the stock a Buy and own the name in staff personal accounts.
Looking for more investing ideas like this one? Get them exclusively at Cestrian Space Select. Learn More »
Person Hidden in Bush Peeping with Binoculars and Spying Others
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The Only Way Is... Up?
There's a famous quote about the stock market - it goes something like this: Nobody knows which way the market will move tomorrow, but I will tell you the direction of its move over the next 10 years, and that is... UP. And by and large that quote has held true. When a new hot sector comes along, and venture capital money flows into it, generally you can say... I'm not sure which of these companies will move up or down tomorrow, but I can tell you the direction of their move over the next ten years, and that is... UP.

This is the best way to look at space sector investments in our view. If you've read our work on the sector you've seen us say over and over since we got started on this beat in 2017 that the sector is early stage, risky, featuring heavy customer concentration and even heavier capex, and all in all not for the faint of heart. Now that a slew of space sector companies have made the public market their home, thanks to the SPAC boom, that view has not changed.

If you want an easy and relaxing time, consider following Mr. Buffett's advice and buy a passive S&P 500 tracker, feed it cash every now and then, and spend the rest of the time not looking at the screen but instead playing golf. Well, at least until the Big One hits. If on the other hand you wish to try your luck riding out the long-run gains we think are available among these new space stocks - you may like to consider owning Planet Labs (currently, the snappy-sounding dMY Technology Group, Inc. IV (DMYQ), soon to trade as PL).

Planet Labs is one of the venture capital-backed space startups that sprang up over the last decade or so as launch costs began to fall and satellite hardware costs follow suit. The company provides Earth observation services to government and commercial clients. "Earth observation" is a very widely used term and that wide definition leads to confusion in investors' minds about exactly what companies in the sector do for a living.

The clearest definition of this we've yet heard came directly from Spire Global (SPIR) CEO Peter Platzer. We recently hosted a live subscriber-only Q&A session with Platzer - he was asked the inevitable question, what's the difference between Spire, Planet and so forth. His answer was - satellites typically do one of three things: Watch, listen, or speak. Optical range satellites watch; RF range satellites listen; transmission spacecraft (think high throughput transponders used by Sirius XM, DirecTV and others) talk.

Planet uses optical-range spacecraft to image the Earth, collect and analyze data, and supply both images and data to its customers. It operates in the modern idiom i.e., it runs a large number of small devices with a high repeat-pass rate (eg. 10x/day average revisits by its SkySat devices). You could think of Planet as an iPad vs. the mainframe operated by Maxar Technologies (MAXR). If you want a high-powered, weapons-grade full-on security service-rated pass over your target, pay Maxar a whole lot of money. If you want a fast view of what's going on, and you want to monitor changes using that high repeat rate, you pay Planet less money. Simple. Planet's September investor presentation remains worth reading if you haven't already.

Financials on Planet will become clearer as the company delivers sequential SEC reports in its fully de-SPAC'd role. Until then we can highlight what we know from the scant material published thus far.



Source: Company SEC filings, Cestrian Analysis

The revenue line can be treated as reliable, and it shows solid growth, albeit at a declining rate. The company will need to arrest that decline and re-accelerate if it's going to deliver a medium-term gain in the stock price. Gross margin has improved materially - for a business like this, dependent on many third parties for satellite componentry and so forth, 40% isn't so bad. EBITDA you can take with a large pinch of salt, since we don't have the full underlying operating income, depreciation & amortization and stock-based compensation schedules; and as for cash flow, well, no idea, since we don't have time-series capex and change in net working capital data. Let's assume cash flow is ugly vs. EBITDA but let's also hope it can improve over time.

The balance sheet at the completion of the SPAC deal should look sound. Current indications are that at least $590m of net cash will land on the operating company's balance sheet. Don't be under the illusion that this is sufficient - it isn't, and at some point the company will raise further cash likely as dilutive equity until such time as debt becomes viable.

The stock chart is so young that it tells you nothing at all, yet.



Source: TradingView (full page chart here)

But that big move up you see at the far right edge of the chart? That's the market feeling good about the high level of shareholder acceptances in the SPAC deal. And we agree with that sentiment. We think Planet will be a speculative buy for some time yet, but a Buy it is in our view. In space as in all things innovation, low cost is the strategy to back. Nobody got poor buying a basket of cost leaders in the tech industry as it has evolved, and we think that's going to be true in space too - Rocket Lab (RKLB), a very low-cost launch provider, is proving this out already.

So as the SPAC deal completion is in the air, and the new ticker beckons, we rate Planet a Buy. If you own the stock or are thinking of doing so, we suggest you will consider the rather spiky risk profile of cash-burning companies this young in their lives as public securities. In staff personal accounts we solve for that with allocation size. We own DMYQ very happily on that basis and we're excited to see what comes next in the company's evolution once the SPAC deal is behind them.

Cestrian Capital Research, Inc. - 7 December 2021.

Space Select brings you exclusive space stock picks from leading independent research business, Cestrian Capital Research, Inc.

We cover the full range of stocks, from new-entrant SPAC deals such as RocketLab, Blacksky or Planet, through to the major prime contractors such as Raytheon or L3Harris, taking in established independents such as Maxar and Iridium.
Our member community includes many longstanding space sector investors and space sector professionals, which means our chatroom is unusually well informed!

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This article was written by

Cestrian Space Select profile picture
Cestrian Space Select
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Cestrian Space Select
Specialist space sector service; capital gain, income & speculative picks.
Growth, Long-Term Horizon, Aerospace & Defense, Tech

Contributor Since 2021

Cestrian Capital Research, Inc is an SEC-registered investment research business, covering the space and tech sectors. If you like our work, sign up for our FREE newsletter, here: https://newsletter.cestriancapitalresearch.com
Disclosure: I/we have a beneficial long position in the shares of DMYQ, SPIR, MAXR, RKLB either through stock ownership, options, or other derivatives. Business relationship disclosure: See disclaimer text at the top of this article.

Additional disclosure: Cestrian Capital Research, Inc staff personal accounts hold long positions in, inter alia, DMYQ, SPIR, MAXR and RKLB.

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About This Article
Ticker Covered
PL
Author's rating at publication
Bullish
Author's Rating History
Author's full rating history »
About PL
Symbol Last Price % Chg
PL
11.14
3.01%
1D
5D
1M
6M
1Y
5Y
10Y
Market Cap
$425.21M
PE
-
Yield (FWD)
-
Rev Growth (YoY)
-
Short Interest
1.63%
PL Ratings
SA Author
Very Bullish
4.50
Wall Street
Very Bullish
5.00
Quant
Not Covered
-
More on PL
Planet Labs rallies for second straight day after SPAC closing
dMY Technology stockholders approve merger with Planet
50% Pop Coming For Planet Labs
50% Pop Coming For Planet Labs
Satellite firm Planet Labs to use SPAC money for investment, customer boost


https://seekingalpha.com/article/4473961-planet-labs-at-buy-spac-merger-completion