2023-05-10 10:38:47 ET
Summary
- PL is a top player in next-generation Earth Observation, with a 200-satellite fleet and a cloud-native analytics platform.
- Planet Labs is making geospatial data more accessible.
- New products such as the Pelican fleet and combining daily datasets with SAR data from Sentinel 1 are extending PL's lead in next-gen EO.
- I remain bullish on the stock and have a price target of $5.4.
Thesis
Planet Labs PBC (PL) is a top player in next-generation Earth Observation, boasting a 200-satellite fleet capable of imaging a large area daily and a cloud-native analytics platform. The company has a massive market opportunity in satellite data services, digital transformation, and sustainability. PL's new products, such as the Pelican fleet and combining its daily dataset with SAR data from Sentinel 1, extend its lead in next-gen EO. I have a one-year price target of $5.4 on the stock derived from a forward EV/Sales assumed multiple of 4x applied to the FY25 consensus revenue estimate of $342 million.
Large TAM with Several Catalysts for Growth
Planet Labs is strategically positioned at the intersection of two major trends: digital and sustainability transformation. These trends are disrupting economies, societies, and the environment worldwide. PL's unique capabilities enable it to play a vital role in both mega-trends by capturing daily changes on Earth and measuring the environmental impact of human activity.
Traditional earth observation companies sell satellite imagery in a 1-to-1 tasking model, where customers request specific images at a point in time in a particular location. This model is expensive and primarily benefits wealthy countries. In contrast, PL scans the entire Earth daily and sells its imagery data in a one-to-many model that makes satellite imagery available to anyone, anywhere. This has enabled the growth of the satellite data services market, which is projected to expand from $5.5 billion in 2019 to $19 billion in 2027.
Efficient and effective methods for measuring, understanding, and reporting environmental impact are essential for sustainable operations by companies and governments worldwide. PL's data sets provide the means to understand how policies and operations affect the planet, which can enable companies and regulators to hold themselves accountable. The growth of clean tech and digital transformation has created a $129 billion opportunity by 2027.
New Products Extend PL's Lead in Next-Gen EO
Pelican, PL's new high-resolution fleet, which will cost 1/3 of those in orbit today, and the recently announced plan to combine its daily dataset with SAR data from Sentinel 1 to eliminate gaps/inconsistencies from weather obscuring optical data highlight how the company can expand its several-year lead.
PL currently operates two constellations, including ~180 PlanetScope Doves and ~20 SkySats. The two constellations combined contain >10x the number of satellites of the company's nearest competitor. PL is able to capture change on Earth from multiple perspectives and dimensions due to the different spatial, temporal and radiometric resolutions in each constellation.
PlanetScope Doves : launched into space in large batches and are about the size of a shoebox; image every point on Earth's landmass one time per day at 3-meter resolution.
SkySat : higher-resolution satellites that can be tasked to image any location on Earth at 50-centimetre resolution with a revisit frequency of up to 12 times per day. PL acquired these satellites from Google in 2017.
A PlanetScope dove can image an entire city in a single scene, while SkySats can be used to view particular areas of interest at a higher resolution. Together, the two constellations work together to scan the Earth looking for change, with the ability to zoom in on areas where change has been detected to gain a more detailed understanding of the change and its potential cause.
PL unveiled Pelican in 2022, its next-generation, high-resolution line of satellites that will replenish the existing SkySat satellites in orbit today. While PL has not released all the specs yet, Pelican will offer increased response times (reduced time between tasking and receipt of image), higher resolution and higher revisit frequency than up to 12x per day of SkySat. This fleet will deliver the near-real-time understanding of change that customers seek. PL expects the Pelican fleet to be operational in 2023.
Planet's mission is to image the entire world every day and make changes visible, accessible, and actionable. To achieve this, the company collects over 25 terabytes of data daily from its satellites, which is then processed into machine learning-ready data through algorithms. By moving up the data processing stack, the data becomes easier to consume and provides valuable insights for customers. At the planetary variables layer, the data can be used to track variables like crop growth and water levels in a region and eventually evolve into valuable insights such as predicting GDP or commodity prices. Although Planet is currently building capabilities in the planetary variables layer, it already has all the raw data needed for more advanced insights; it just needs to add the necessary analytics.
Valuation
I compare PL with its peers in next-gen satellite data services as well as several data and analytics SaaS businesses whose financial models I expect PL to more closely resemble as revenue scales. I view PL's valuation premium to its peers in the satellite data services segment as warranted due to its several-year lead as the only company that has a completely operational fleet and $100 million+ in revenue. As such, I see substantially less execution risk for PL relative to peers.
I expect margins to expand and PL's model to more closely resemble that of a SaaS or Data as a Service business. With strong execution, I believe the management's FY26 target of 74% margins should command a multiple approximating the median of the Data & Analytics comparable group. Hence, I keep a one-year price target of $5.4 on the stock derived from a forward EV/Sales assumed multiple of 4x applied to the FY25 consensus revenue estimate of $342 million.
Risks
Planet Labs is vulnerable to the loss of any significant customer, as it could have a significant impact on its revenue growth and net dollar retention rate. As of FY22, PL had two clients who accounted for over 10% of its revenue, and the loss of a major customer poses a risk to the company's estimates. The government side of PL's business is also at higher risk due to political, budgetary, and other unpredictable challenges. Moreover, PL's plan to expand into new verticals may be more challenging than expected. The company's customers historically used geospatial data, and PL's efforts to penetrate new markets by simplifying data consumption and developing vertical-specific analytics could require more time for sales cycles and greater investment in sales and research and development. This presents a risk of not achieving management's projections beyond FY24.
Investors' Takeaway
Planet Labs is a leading player in the Earth Observation market, operating a fleet of approximately 200 satellites. By simplifying access to geospatial data, PL is expanding its current markets and unlocking new ones. I expect PL's revenue growth to accelerate in F23/24, driven by increased investment in sales and marketing and software development. I have a one-year price target of $5.4 on the stock based on a forward EV/Sales assumed multiple of 4x applied to the FY25 consensus revenue estimate of $342 million.
For further details see:
Planet Labs: Well-Positioned In A Growing Market