Changing the Satellite Business Model - One Picture at a Time
Let me tell you a tale. Many years ago, a few very intelligent dudes were sitting around at the NASA HQ, where they worked. Their boss was in the room, complaining about their latest project - a large and cumbersome satellite that NASA was working on sending to space at the time. He joked that “his phone had more computing power” than the satellite they were working so hard on. He probably laughed at his own wit and went about his day, but for a few scientists in the room, the joke changed their lives.
They had the bright idea to develop something they called a CubeSat, which they built for just $70K - it was a phone, encased in a tiny cube, that had more computing capacity, memory, and storage then any of the satellites NASA was deploying at the time.
They were laughed out of the room when they revealed their product.
They went on to found a highly successful business that would change how the satellite industry operated, all built on the foundation of their initial idea to send a phone into space. Their business has grown to become the ‘Bloomberg terminal for Earth data’ and one of the largest operators in the geospatial intelligence industry, providing critical data with use cases that span industries and nations. That business was Planet Labs (Ticker: PL).
**Disclaimer: I’m not a qualified financial advisor. This article is meant for entertainment and as a foundation for further research. Please do not buy or sell stocks based solely on what you read.**
At Time of Writing:
Market Cap - $845m
Revenue - $203.8m
Gross Margin - ~52%
Planet Labs was founded in 2010 by NASA scientists gone rogue, Will Marshall, Robbie Schingler, and Chris Boshuizen. Initially named Cosmogia, the founders set out with a mission to revolutionize the satellite industry, and to make use of the information they gathered to better the planet.
Being heavily involved with the space industry from their time at NASA, they understood that the biggest barrier to wide-spread satellite usage was the prohibitive costs and large, clunky designs. So they got to work on designing compact, cheap, and mass-manufacturable satellites - naturally, because they’re brilliant people and badass enough to pull this off, they built the first one in their Californian garage.
The design worked. Planet now manufactures satellites at a 1000x reduction in both cost and size, according to the company, while also benefitting from tailwinds in the aerospace industry that have worked to reduce the cost of getting equipment into space by a factor of 10. With hundreds of satellites now in Earth’s orbit, Planet is able to photograph the entirety of Earth twice a day, every day, to provide organizations across a variety of industries with a complete ‘mosaic’ of the Earth’s surface. Their imagery fulfills a frankly ridiculous number of use cases, many of which I would not even have thought of before reading more into the company, and the possibilities are only continuing to expand as Planet and their products, capacity, and technology further evolves.
The company only recently went public in late 2021 via SPAC, joining a slew of other aerospace companies that have made the move to go public in the last several years. Since going public, the company has returned (-67%) as of writing and trades at a market cap just over $900m. Planet Labs has also committed to the core values at the heart of the company by registering as a Public Benefit Corporation (PBC), which requires that a for-profit company state its mission and how that mission serves to benefit humankind - the mission at the core of Planet is “to accelerate humanity toward a more sustainable, secure, and prosperous world by illuminating environmental and social change”.
The basic function of Planet’s business is incredibly simple (though the individual components of each segment of the business is highly complex and technical) - they design and build compact satellites, then work with launch partners to catapult these satellites into space. Once there, the satellite joins a constellation of over 200 other satellites in a highly regular orbit around Earth, and afterwards plays its small part in Planet’s mission to photograph the entirety of Earth 2x a day. They call this ‘agile aerospace’ - the quick deployment of small, inexpensive satellites that can be easily replaced and which are designed to provide value through the sheer quantity of imagery data they can provide.
The business doesn’t stop at imagery - Planet has expanded beyond the traditional business model for satellite companies simply providing raw photographs to their customers. Planet’s vision for their business, much the same as the vision they had for a redesigned satellite, has changed the industry by creating, either through in-house development or via acquisition, a substantial software suite. By developing software stacks that can layer on top of the base imagery, Planet allows customers to more effectively leverage their data through predictive modelling, automatically processed images, and analytics. Best of all, all their data is open-source, making it easy for customers to layer Planet data on top of their existing workflows in popular geospatial platforms like ArcGIS, QGIS, and Google Earth Engine.
The combination of Planet’s imagery and their software stack are then licensed to customers through a subscription service, providing high-margin, extremely sticky, and recurring annual revenues for the company as well as lower upfront fees and ease of access for customers. Customers can add further data analytics and software capabilities at extra cost as needed/desired. That is the basic business model for Planet Labs, and it should only continue to prove more effective with time - as the company continues to build out their software applications and expand their satellites’ capabilities, they are able to expand contract values with current customers and the use cases of their products to land new clients.
Imagery - Planets imagery can be sectioned off into two segments - daily imagery and tasking.
The daily imagery, as covered above, is the constellation of satellites that orbits the Earth and essentially takes two daily scans of the entire beach ball we live on (+300m sq km). This charge is carried out by Planet’s army of approximately 200 ‘Dove’ satellites, which have photographed consistently since 2009 with a 3.7m resolution camera. While this is a fairly high resolution considering these things are shooting from space, it really only allows large-scale monitoring - it doesn’t provide a clear enough picture for smaller areas or more specified monitoring. That’s where tasking comes in.
Tasking is the newest segment of Planet’s business that helps cater to higher-spending clients that require more detailed, higher resolution looks at specific areas. Planet’s ~20 SkySat model satellites are equipped with cameras that can capture at a 50cm resolution to fill this need. As an example, let’s say I’m a Planet customer using the baseline imagery to monitor a protected forest - using the 2x daily imagery, I may notice that a patch of trees has disappeared. While the basic imagery shows change, it is likely not detailed enough to assess why the trees disappeared - if my contract with Planet Labs includes tasking (at extra cost), then I can quickly earmark that site as an area of interest and a satellite with a more detailed, high-resolution camera is automatically sent there. Once those images are returned to me, I can see that there is illegal logging taking place and I can send the appropriate authorities to deal with the loggers. In a scenario where I may need to continue the tasking, these satellites are capable of 5-7 revisits per day, which is the highest number of tasking revisits commercially available today. This technology was used in 2021 by a group of researchers interested in global nuclear facilities - using the daily imagery, they uncovered signs of new construction in Iran. Tasking SkySat to take a more detailed image of the area of interest revealed a potential underground nuclear facility, demonstrating a potential use case for defense & intelligence companies.
More recently, Planet has began developing and deploying their next-gen model of Pelican satellites, which function for the same purpose as the SkySat models (tasking) but are even more precise by capturing at higher resolutions (30cm vs. 50cm), are capable of many more site revisits (30 vs. 5-7), and with only 30-minute gaps between images (if required) - Planet plans to deploy 30 of the Pelican satellites, significantly increasing the total tasking capabilities of their fleet.
Lastly, but certainly not leastly, are the Tanager satellites, Planet’s tiny fleet of hyperspectral satellites designed to detect traces left behind by harmful chemicals and materials and which are not visible to the human eye. These satellites are crucial in allowing Planet to monitor environmentally harmful activities taking place around the globe, and one of it’s very first use cases was the Carbon Mapper initiative; Carbon Mapper applies imagery from the Tanager satellites to locate methane emitting sources across the globe, helping to better understand where the bulk of environmental harm around the world is coming from. Tanager’s applications don’t stop there - hyperspectral data can contribute to detecting and monitoring oil spills, agriculture health, and forest health. The Tanager models allow Planet to serve several more niche use cases as well as stay true to their corporate goal of bettering the world. Not a bad way to round out a satellite constellation.
Software - While imaging is crucial to Planet’s business, the true value lies in the software they make available to customers;
Platform - This is the foundation of Planet’s cloud-based software, the main interface on which users can embark on fulfilling their various needs. Here, customers have access to satellite imagery, data modelling and predictive analytics, automated image processing capabilities. If they need to import Planet data into existing workflows, they can also integrate it into other geospatial programs like ArcGIS from here, as well as program it specifically to their own systems.
APIs - Considering the broad range of applications for Planet’s technology, it is crucial that their datasets and imagery is open and able to be programmed to an organization’s specific needs, workflows, and systems. Planet has emphasized the need for an Application Programming Interface (API) that allows customers to do just that - customize and design Planet’s data into their own systems for seamless workflow and efficiency.
Basemaps - Planet’s Basemaps allow customers access to Planet’s daily Earth imagery, updated annually, and serves as a sort of Google Earth on steroids, with modern and up-to-date imaging that allows users to monitor change by day, week, and month from images taken within the last year. These basemaps are primarily used for mapping, updating charts, and basic visualization.
For customer’s looking for a little extra juice, Planet also offers Select Basemaps, allowing customers to choose what they need, where they need it, and how often; Select basemaps can be fully customized by area, frequency of image delivery, visual (how the human eye would see) or multispectral bands (picks up wavelengths not visible to the human eye), and downloading or streaming options. The Select offering also offers colour corrected, cloud-free images with minimal impact from haze, light, or topographic effects (all of which can mess with images taken from so high up).
Variables - This program is designed specifically to monitor constantly-changing biological systems on Earth’s surface: soil water content, crop health, surface temperature, forest structure, and aboveground carbon stores. This is done by fusing data from optical, radio, lidar, and passive microwave bands to reveal those things which our eyes are not able to see. With the assistance of remote sensing scientists, Planet has created algorithms that clean up these images to produce clean and usable data that provides insight into the daily changes of Earth’s biological systems.
Analytics - Planet Analytics allows deeper insight into how we change the world we live on. Analytics can automatically detect change and assist in object identification to monitor new roads, buildings, and ship and airplane movements. Planet’s software is capable of automatically doing this for customers, taking wide swaths of land and automatically identifying change across landscapes to pick up features of interest and monitor trends & change.
Customers & Use Cases
Though Planet itself is a tech company, they provide their imagery and range of software solutions to customers that fall under nearly every sector of the economy. The industries utilizing Planet’s technology are extremely varied and rather than list them out monotonously, I decided to take it from the lion’s mouth;
There’s a wide range of use cases as well, but here’s a few of the more widely used purposes for the imagery & software stack;
Environmental monitoring programs (non-profits, consultants, or governments) can use the imagery to monitor the change of the Earth everyday and get a sense of how Earth’s landscapes change over long periods (using Planet’s backlog of imagery) or from day-to-day. Organizations protecting forests, wetlands, or other ecological areas can also utilize the daily imagery to discover illegal mining, logging, and/or any other unlicensed activities that could be harmful to the environment.
Insurance companies can use the imagery to observe the risk factor for an area, in turn speeding up the process of quoting and insuring clients, as well as ongoing processes of rating potential risk. It saves a significant amount of time and cost otherwise spent sending employees out to do the work manually. For large-scale claims, such as those made after a natural disaster, insurance companies can use satellite imagery to survey the extent of damage in an area.
Defense & Intelligence interests can use Planet to track unidentified maritime or aerial objects, identify refugee camps and illegal border crossing areas, and monitor military activity in other countries. Defense and intelligence provide a significant chunk of Planet’s revenues and help to demonstrate a lot of the use cases; Planet’s satellites were involved with tracking the ‘weather balloon’ debacle in early 2023, and assisted in identifying a missile center and launch in North Korea. For defense and intelligence customers, Planet’s value offered is less a financial and efficiency gain but rather the high-quality and mission-critical capabilities they offer these industries/specific organizations.
Energy & Infrastructure companies have some very interesting use cases that helps to demonstrate the immense value and cost savings that Planet’s solutions can provide - a recent six-figure contract with a oil pipeline company exemplifies this; using daily imagery, the company can monitor the entire length of their pipeline infrastructure to ensure there are no leaks, risks of leaks, blockages, or trees collapsed on top of them. This saves them time and money putting boots on the ground to drive the length of the pipeline to manually check on its wellbeing while also allowing them to monitor it in a more effective and timely manner. On top of doing a better job for less money, Planet’s capacity to monitor infrastructure can add more value by saving companies from lost revenues or environmental cleanup requirements if there are any leaks or blockages.
Agriculture processes can be made significantly more efficient with Planet’s capabilities - satellites aid in pest detection, allow farmers (as well as crop insurers) to monitor crop health & nutrient deficiencies, and provide data for planning, risk management, operational improvements, and for maximizing yields. Given the size and global span of the agriculture industry, as well as the $$$ flowing into it, this is a good space to be - Planet can offer value-additive products for a huge industry and farmers are able to be more environmentally friendly while also saving money, a win-win for everyone involved.
Perhaps the most universally-applicable use case for Planet agriculture is managing irrigation to more efficiently utilize water - as water becomes a more precious resource and more areas suffer from drought conditions (ie California), these kind of technologies will become extremely important, not only to individual farmers but also to entire municipalities, states, and nations. Currently, less than 65% of water drawn for irrigation purposes is actually needed by crops - using Planet’s software & imaging tech, farmers can garner site-specific irrigation plans to reduce freshwater withdrawal and contribute to a world of sustainable agriculture that is capable of feeding our burgeoning global population.
These are just a few of the potential uses for Planet technology. I could likely write an entire deep dive article solely on the various use cases and how they can assist individual organizations, Planet’s top- and bottom-line growth, and environmental/social causes as well. At the risk of turning this into a novel, however, I will move on. Nonetheless, the extensive possibilities for satellite imagery across multiple industries is central to Planet Labs’ case as a potential investment and the size of the company’s addressable market.
Accenture & Planet Labs entered into a partnership in late 2022 as a part of Accenture’s Ventures’ Project Spotlight, which is aimed at providing investments into early-stage technologies firms and connect them with a larger array of clients. I don’t really have the words to explain how huge this partnership could be for Planet; Accenture is one of the world’s largest consulting firms and is connected to many, if not most, of the most successful businesses across the globe. Having Accenture recommending Planet’s services to these customers could spell a huge win for Planet and provide massive revenue streams down the road.
Their partnership seems primarily aimed at, in the company’s words, “[collaborating] on an array of sustainability and impact initiatives, including measurement, traceable supply chain strategy and data-based climate risk assessments to mitigate disruption across global value chains” and folding these capabilities into Global 2000 firms. The partnership with Accenture should be able to significantly boost Planet’s visibility within the business world and its mission to bring sustainability and efficiency to global industries through space technology.
Microsoft & Planet have been partners for a while through Microsoft’s ‘AI for Good Lab’, but announced at COP27 that the partnership was now working towards a ‘Global Renewables Watch’, designed to provide a visual index of renewable energy initiatives and infrastructure across the globe.
They are also working on a Google search for earth imaging, called ‘Queryable Earth’ - this is pretty much the least zingy name of all time, but the project itself sounds pretty cool. This partnership will work to combine Microsoft’s AI capacity with Planet’s massive dataset to create a searchable platform for satellite imagery, thus making their data extremely accessible and understandable for everyone. Check out their proof-of-concept video here;
Though their audio-editing team leaves a lot to be desired, the concept is pretty interesting and would definitely aid Planet’s mission in making their imaging and data accessible to a much broader range of people, it’s hard to say if this will contribute to the top- or bottom-line growth of their business (though it will certainly help with brand recognition).
Synthetaic & Planet Labs have a very brief but highly evocative history together, one that can be traced through the eons to the suspected Chinese weather balloon debacle of early 2023. While I’m unsure how that situation ever garnered as much attention as it did, it provided a very interesting use case for a partnership between Synthetaic & Planet Labs - Synthetaic offers an AI tool called RAIC (rapid automatic image categorization) that is perfect for Planet’s dataset. Using this tool and Planet’s imagery allowed for a quick and “nearly trivial” tracking of the needle-in-a-haystack object that was the weather balloon - at a basic level, the tool can identify and provide analytics for objects of interest in Planet’s images. Planet customers will be able to use RAIC to monitor objects and change within the Planet dataset, and the two companies are planning to next work on an alert system using RAIC that will notify customers on change or objects within their defined area of interest.
With the emergence of advanced AI and the vast dataset that Planet pulls in (I know I keep saying huge data but I MEAN it - they’re processing over 30TB and 4 million images every day, and this number is only growing), I want to take this opportunity to point out just how perfect Planet’s imaging is as a training set for machine learning. The satellites operate in regular orbit and capture nearly identical images every day, making it incredibly easy and useful to feed this dataset into AI and teach it; I think this capacity for Planet and AI to forge such a strong synergy will provide a lot of future growth opportunities and expanded use cases for the company, and that Synthetaic is only the tip of this particular iceberg.
Often with the companies I analyze, I don’t have a ton of personal experience with the products involved. In the case of Planet Labs, I can very happily say otherwise. Without going too much into personal details, as I know you’re not here to read my autobiography (make sure to catch it when it hits the shelves though, it will be a doozy), my day job is in the environmental monitoring industry. Planet is used extensively by many of our partners and our own organization has recently began implementing its products as well.
What started off as a pilot project quickly turned into much more - just two months ago, our org started off by purchasing a very minimal contract with Planet. In the succeeding months, we have upped our contract with Planet to include tasking for specific areas and are already in talks to up the contract value again for next season. While not directly involved with the procurement process or in using the product, I naturally had to quiz those who were, and there was some awesome feedback I got out of that;
The Planet sales team was extremely passionate about their products - they spent less than half their time actually trying to sell the product, while the rest of the time was friendly conversation and extolling the virtues of their imaging and software. This kind of passion out of a sales team is awesome to hear about, and I actually like that they were speaking about the product more than selling it - this demonstrates the usefulness of their product that they didn’t have to sell us on it, they only had to tell us what it did and let the possibilities do the real talking.
During the initial procurement process, our team asked the Planet sales reps whether there was any competitors we might be able to reach out to. They told us, not in a deceiving or immoral way, that there was no other product out there that could meet our demands. And they were right. For our use cases, Planet was the only company that would be able to satisfy our needs. While our org is normally required to contact multiple sales teams in the procurement process, this fact alone made Planet a pretty easy (the only) choice.
The engineering team was extremely agile - there were some suggestions our team made as to how their product could be improved for our use cases. Just a few weeks later, our team noticed those changes had been implemented. I like this for a few reasons; firstly, it shows that the sales team not only took our request in stride but had direct and fast access to engineering teams to place the customer’s needs in front of them; secondly, that the engineering team was extremely open to further improving their product and quickly moving on those initiatives. It seems Planet practices agile development as well as agile aerospace, and this impressed me a lot.
While anecdotal evidence is, of course, not everything, and there are countless other factors when considering an investment, it was extremely comforting to me to hear these things (especially as I’m already a shareholder). The Planet Labs team was able to leave us as with a very strong impression of the company (not always true with a monopolistic business that knows we have no choice but to use their product) and the products left us wanting more.
Now we come to it. Planet the company is a beautiful thing, with an attractive business model, an admirable mission as a PBC, and strong partnerships that should spread its brand, expand its use cases, and increase its revenues. The balance sheet, however, is the true sense of how a business is doing from a quantitative perspective. And the result for Planet Labs is…
Actually, not bad. Considering this is a young growth company, it’s expected that there will be some ugliness, but for the most part Planet maintains a pretty attractive balance sheet. Let’s get the worst over with before we dive into what they’re doing well.
The Balance Sheet - The Bad & The Ugly
Flat EBIT & EBITDA - While growth-stage companies are not expected to be turning profits with their capital tied up in constant expansion of the business, one would at least hope to see their EBIT & EBITDA figures rising. Unfortunately, Planet Labs is going to leave investors hoping. EBIT has been roughly flat since the company went public (though EBIT margins are on the rise), and EBITDA has actually gone much further into the negative - the difference in the two here being the depreciation of Planet’s satellite constellation, as well as the amortization of its software.
SBC - I feel like this particular section could get repetitive fast in covering tech companies, but it’s still something to be cognizant of; Planet’s YoY increase in stock-based compensation expenses was a whopping 80%, representing some pretty significant costs for the company and potential future dilution for shareholders. This is obviously not ideal, but also just the way of the road for a tech company that needs to retain its talent - that comes at a cost, and this expense just has to be factored into an investment in Planet.
Revs per Share - It’s tough to see revenues on a per-share basis declining as a result of stock-based compensation - this will definitely be an important figure to keep track of the revenues per share decline to assess how much damage the SBC is doing to shareholder value.
Beyond these points, the rest of the balance sheet is pretty typical of a growth company - negative margins for anything that isn’t gross profit, negative returns on capital, equity, and assets (these are actually pretty more metrics to be valuing a growth company with anyways, as they are backwards rather than forwards looking - they’ve built out the products and now have to expand the business to earn the returns on the capital they’ve spent), and obviously are not profitable yet.
**Note: ignore some of the metrics from the Stratosphere.io snapshot - I think it’s tweaking. The 3Y revenue growth figures are definitely not negative (see rev growth below) and it is not updated to the most recent quarter’s market cap or cash on balance sheet figures.**
The Balance Sheet - The Good
Customer Diversity - As seen in the chart below, Planet’s FY23 revenues were nicely distributed across different regions and types of customers (keep in mind that Planet is one of those companies that likes to confuse us with their fiscal year, so FY23 is actually 2022 results). They are obviously concentrated in North America but have gained nice penetration into the European and Asia-Pacific markets as well. I’d look for those numbers to continue growing, as well as possible expansion into Latin-America in the future. Furthermore, they are not wholly reliant on any one type of customer with a pretty nice split between civil government, commercial enterprises, and defense & intelligence interests.
Rev Growth - YoY growth of 31% (as of Q1 results) shows Planet is still growing at a decent clip, though it should be noted this is down a fair ways from the 43% YoY growth seen in Q4 - I try not to pay too much attention to quarter-by-quarter differences, but it’s something to monitor over the coming quarters. The decline may be due to when their typical customers are signing contracts, or due to macro-economic conditions. In the latter case, this could suggest some customers don’t see Planet’s products as critical enough to justify the spend in tighter market conditions, so that will be important to keep an eye on as well. Nevertheless, with a 3-year average of approximately 27%, growth of 31% may show that revenue growth is actually increasing gradually as Planet builds out customer relationships and brand recognition.
Strong Cash Position - Planet ended its most recent quarter with $376m in cash on hand to continue growing the business - for a company that trades at a sub-$1bn market cap, this is a pretty impressive amount of dry powder to make fresh acquisitions or grow out their in-house operations. It also demonstrates the company’s fiscal responsibility in keeping cash on hand, further proved by a relatively low cash burn (only dropped from $409m in Q4).
Debt - Planet’s total liabilities as of Q4 (they haven’t made SEC filings for Q1 yet) were $122m, far outweighed by the $376m that Planet has on hand for cash, yet again evidencing their fiscal responsibility and capacity to pay off debts should the need arise.
Cost of Revenues - While Planet’s revenues continue to grow, their costs of revenue have remained relatively constant at just short of $100m (actually a decrease from 2020), showing that they don’t need to spend too much extra to drive revenue growth while also providing a pretty reliable cost of revs figure for future growth modelling.
Narrowing Losses (EPS) - Planet is slowly narrowing down its losses on a per-share basis, increasing its earnings per share from -2.7 in 2021 to -0.6 at the end of 2022 (~78% increase).
Gross Margin Expansion - Gross margins have improved significantly during Planet’s public life, gaining traction from just 23% during FY21 to today’s 51% margins. This is pretty impressive growth and the investment opportunity becomes much more attractive if Planet can continue to expand these margins.
Key Performance Indicators (KPIs)
NDRR (Net Dollar Retention Rate) - NDRR is the single-most important metric to follow to monitor the success of Planet - this metric speaks to the amount that current customers continue to spend on the company’s services (it doesn’t include new customers). A 100% NDRR shows that companies are spending the same amount, <100% shows a reduction in spend, while >100% shows an increase in spend;
Planet boasted a NDRR well above 100% (134%) at the end of Q4, representing a growth of 18 percentage points YoY and indicating the immense value and satisfaction that their customers obtain from the service to continuously grow their spending at such a high clip. In the most recent period this has dropped to 99%, showing a slight reduction in spend, but this is where quarter-by-quarter monitoring isn’t particularly useful - the Q1 ‘22 figures saw a sub-100% NDRR but still grew to 116% by the end of the year, so check in on the NDRR for Q4 of 2023 (or 2024 by their fiscal schedule) to really get a sense of whether customers are expanding their contract values or not.
% of Recurring Annual Contract Value (ACV) - This is an important metric to track to get a sense of how much of Planet’s total revenues are from recurring, annually paid contracts, rather than one-off purchases. As of the most recent quarter, this value was >90%, meaning that more than 90% of their revenues are recurring in nature. This is a very solid number and shows that most of their customers are sticking around for longer periods to provide a predictable and steady stream of revenues.
Number of Customers - Monitoring the number of customers that Planet is selling their products is important to keep track of how their products are gaining traction in the wider market;
With ~500 customers in Q1 ‘21, Planet has achieved pretty impressive customer count growth over just three years (approx. 80% increase). Considering the partnership with Accenture, as well as broader brand recognition as the company grows and garners media attention, I don’t see this customer growth stopping anytime soon.
Defense & Offense
Imagery Moat - Defense
Planet’s first-mover advantage has allowed them to amass a massive imaging catalogue dating back more than a decade. The time they have spent in the industry and the backlog of imagery and data they have gives them a quantifiable advantage over others in the industry. Even in the unlikely scenario another company were able to build out a similarly-sized satellite constellation overnight, they would not be able to summon Planet’s backlog of data out of the woodworks - for customers seeking a sense of the grander scheme of historical change on Earth, Planet would seem a far more attractive option for this offering alone, though it should be noted this defense really only extends to customers that require this capacity - for others that only require new imagery and tasking, they would happily take whichever is cheaper and/or better. This is where Planet’s constellation moat comes in.
Constellation - Defense
Being one of the first major movers in this industry (at least with Planet’s more agile business model and satellite design) will, I believe, pay major dividends for Planet Labs and its shareholders. One of the advantages to this is the massive lead the company has built for itself in the size of its satellite constellation - with 200+ satellites currently in space, and with this number only growing, the capacity of Planet’s satellite constellation is nothing to sneeze at, and helps to serve as a solid defense against competitors. Any smaller players or new entrants in the space (see what I did there?) will have a significant amount of work to do before they can get anywhere near Planet’s imagery capacity. The upfront capital a competitor would require to build out an equally-sized constellation would be significant as well, and would require a very large investment - in the case of new entrants, it would be difficult (if not impossible) to acquire this seed money for a yet unproven product. Even if a competitor were somehow successful, Planet is unlikely to stay complacent with their lead; while competitors are busy trying to catch up, Planet can continue to expand its own constellation capacity.
Expand Constellation Capacity - Offense
As Planet Labs continues to grow, they can manufacture satellites designed for use cases outside their current value offering and use these to expand further into the industry, grow their addressable market, and provide more use cases for current clients as well as attract newer customers. The SkySat and Pelican satellites designed for tasking missions are good evidence of this, attracting new customers and providing current customers with wider use cases and better tools. Not only does this attract more clients but also provides Planet with additional revenues from customers that choose to have tasking capabilities in their contracts.
If Planet continues to grow its satellite constellation for more imaging, higher resolution cameras, and more tasking capacity, it will not only expand the company’s moat but simultaneously grow its market, revenues, and value added for new and existing customers.
AI Partnerships - Offense
As I briefly mentioned above, Planet’s dataset is perfect for ML, and I believe partnerships with Synthetaic and Microsoft are just the beginning of the possibilities. If Planet continues to focus on these partnerships, and AI firms continue to want to work with Planet and their dataset, then not even the sky is the limit (get it? Because space?).
While I myself am not bright enough or involved in the AI industry at all, I’m sure people much smarter than myself will continue to find new ways to leverage AI to make better use of Planet’s imagery, improve efficiency and usability in the products, and deliver new solutions to a growing number of customers. This is very much in line with Planet’s self-proclaimed growth levers of creating new products to expand into new markets with new customers, as well as expanding the value of their offering to existing clients.
Software - Offense & Defense
That’s right, you get the rare complete package out of Planet’s software offerings. Let’s touch on the offense first;
By developing new software and improving the usefulness of old (potentially with AI capabilities), Planet can land new clients, expand relationships (and revenues) with existing customers, and hit new markets with expanded use cases.
For defense, software serves as the primary factor that will set apart their product from others in the space or hoping to enter. As competitors are stuck building out a constellation just to match Planet’s, Planet can continue to develop software that will continuously make their product better and differentiate their offering. So, even if another company was able to quickly develop an equally sized constellation, they would still be significantly behind in offering the advanced analytics, object identification, and biological systems monitoring that Planet offers through its software.
Space technology is still a relatively nascent industry - while yet unproven, I believe the potential it offers to our global society means growth is almost inevitable. That’s just my opinion, but I’m not alone here; Morgan Stanley analysts estimate the space industry could expand to $1 trillion by 2040, while McKinsey (a consulting firm) estimates it could hit this same figure by 2030. Here’s there quick snapshot of the space market opportunity and previous growth;
Those are some frankly astounding growth projections, but it speaks to how much hope there is for this market and continued growth into the future. Of particular interest to Planet Labs is the amount of high-res imagery being collected, the number of launches (that’s how they get their satellites into space), and the number and cost of satellites being sent into space.
Despite the market optimism, the space industry has before experienced brief booms in popularity that dwindle away to leave shareholders caught up in the action sad and a little more broke than they were beforehand. To be expected in an unproven industry that is on the very frontier of technology and working to expand capitalism to its broadest reaches yet, but it should still be noted that volatility is likely going to be the name of the game for years to come as the market settles and the strongest players assert their positions. Nevertheless, it is clear that this is a market with significant tailwinds behind it, and Planet should be well-positioned to ride the wave, grow with the industry, and perhaps even become one of those strongest players that is able to assert dominance over their niche.
I guess I kind of spoiled this one above. The market opportunity for space as a whole is huge, though this obviously isn’t specific to Planet’s total addressable market.
Valued at $3.75bn last year, the market for commercial earth observation is expected to grow at a ~11% CAGR through to 2030 to reach nearly $9bn. Comparing today’s market size to Planet’s revenues and market cap, it already has plenty of room to grow into, and this should only increase as time goes on. Given the use cases and wide number of industries that Planet can provide valuable products for, I have optimism they can continue growing into the market size and take advantage of this quickly expanding sector opportunity.
Spire Global - SPIR 0.00%↑
Spire (Ticker: SPIR) provides RFID (radio frequency identification) services from their satellites in orbit, helping to provide supply train tracking as well as monitoring of ships, planes, cars and other transport. Though they’re in the market of Earth Observation, they are not a direct competitor in the sense that they also do imagery. Essentially, their satellites have antenna that bounce radio waves out from space and ping back from the radio frequency tag, allowing them to monitor objects with a registered RFID tag on a constant schedule. So while they aren’t competing for the imaging market, they hold a significant advantage over Planet Labs for supply chain tracking, as their RFID can monitor constantly, whereas Planet imagery is often constrained by cloud cover, limiting the capacity for 24/7 monitoring. This is only one use case of Planet’s and Spire certainly won’t be putting them wholly out of business, but it is a blow to one of Planet’s offerings that would likely attract a few customers.
BlackSky - BKSY 0.00%↑
BlackSky (Ticker: BKSY) is one of Planet’s closest competitors; they offer nearly identical value propositions to companies in need of geospatial information from space. They image. They have a constellation of satellites. They have software that stacks on top. So, what’s the difference?
Where Planet Labs has more than 200 satellites in orbit today, BlackSky has 14.
I’m going to leave it there. I think it would be wrong to completely discount the threat of BlackSky - they have managed to land quite a few multi-million dollar contracts recently, but their revenues at the end of 2022 were about $60m (vs. Planet’s $190m) and had only $57m on the balance sheet (vs. $376m). This is where Planet’s first mover advantage rears its beautiful head - to my eye, BlackSky simply cannot compete with the size of Planet’s constellation, dataset, or software stack.
If BlackSky is one of Planet’s closest competitors, Maxar is #1 and is the only one that actually holds a candle to Planet’s offering. The company was founded in 2017 when Digital Globe and MDA Holdings merged into one entity - Maxar. Their experience in space goes back a long ways before the merger though, and they were one of the OG players in this space. The business models vary between Planet and Maxar, however - where Planet focuses on covering broad ranges (350m sq. km per day) at lower resolution (3.7m) with cheaper satellites, Maxar focuses instead on tasking, with fewer but larger and more expansive satellites that photograph 3.8m sq. km per day at 30-50cm resolutions and can be directed. They employ 6 satellites to do this.
As Planet Labs focuses on expanding their Pelican fleet (which shoots at 30cm resolution as well) for increased tasking capacity, their higher-resolution constellation will quickly surpass Maxar’s fleet. Once the Pelican fleet is fully deployed, Planet will have become a one-stop-shop for everything geospatial intelligence, allowing customers to sign one contract that fulfills all their daily monitoring and tasking needs in one go - considering that many companies are weighed down by hundreds of contracts, multiple software applications, and a lack of time for procurement processes, this will add significant value to customers. Maxar will not be able to deliver this same value proposition and are unlikely to be able to build it out, as they are also focused on a range of other satellite offerings, such as communications satellites.
They will, however, try their darndest. They are launching a WorldView Legion offering, which offers an mini-constellation of 30cm resolution satellites - but it seems they’ve been outdone by Planet’s Pelican model not only in terms of numbers, but also site revisits - while Maxar will offer an “unprecedented” 15 revisits a day, Pelican will allow customers up to 30 revisits a day. Now I’m no space expert here, but that seems to be a pretty significant amount of extra value gained from Planet’s products over Maxar’s.
Satellogic - SATL 0.00%↑
Satellogic (Ticker: SATL) is yet another satellite imagery company, with 39 satellites currently in orbit out of a planned 90 total. Eventually, they would like to expand to a 200+ satellite constellation to do… exactly what Planet is already doing. Again, see the competitive advantage gained by software. I won’t dive into this one too much, but I see them as pretty much in the same boat as BlackSky - too little, too late. They may be able to land some sizeable contracts and stay afloat, but if they are trying to compete with Planet then they are very much riding backseat for now.
Overall, while the satellite imagery space may seem somewhat saturated with a number of players trying to do what Planet is doing, Planet Labs is very much the leader. They have the largest constellation, they are building out their fleet to surpass niche offerings, and expanding software offerings to further stave off competitors. I am not too worried about competition, and I don’t think Planet’s biggest risks to the businesses or share performance comes from any of the companies mentioned above or any in existence today.
As always, I can’t start any ‘The Team’ section without a glance into the Glassdoor reviews;
Will Marshall scores incredibly well with an astounding 86% approval rating, and the company gets 4.1 shiny stars. Many of the positive reviews rave about the team and the culture as a whole - enough of them are recent that I think it is safe to dispel worries that the company culture may be eroded by going public (perhaps a benefit of their registration as a public-benefit corporation).
Also, who the hell thought it was Planet’s fault that it was expensive to live in San Fran? Seems a bit silly to ding Planet Labs for that, but there you have it. That was the quick and mostly positive glance at Glassdoor, and I didn’t find anything to discourage me from further researching the company.
Will Marshall - Co-founder & CEO
As far as CEOs go, they don’t get much smarter than Marshall (that’s his garage pictured above). He completed his masters in physics and space science (with his down time in the summer spent working on fusion propulsion, naturally) in 2000 before beginning his Ph.D. at Oxford. His thesis was "Towards Quantum Superpositions of a Mirror", and I will give you $5 if you know what that means, because I don’t. After completing this in 2004, he decided he hadn’t had enough of school and did a postdoc at Harvard on space policy, before finally beginning his career at NASA in 2006.
At NASA, Marshall was involved with several missions, as well as a project to deal with space debris in orbit around Earth, and finally helped to formulate the Small Spacecraft Office there. When his views on tiny satellites started to stray from what NASA was wanting to focus on, Marshall decided to leave to start Cosmogia with those fellas pictured above. You’ve just spent the last 7000ish words reading about what became of that.
Today, Marshall heads the company as CEO; we love to see a good founder-led business - they tend to out-perform the broader market and be more aligned with shareholders for maximizing the value of the business. Watching his interviews, I got a very positive overall read from Marshall;
He is obviously passionate about his work at Planet Labs and the mission they have set out to realize.
He is charming in a nerdy way but not charismatic in an icky corporate way.
Listening to him speak, it is clear he’s an incredibly smart guy, and I’m scarcely surprised he’s built a strong company culture over there.
He’s also very young and obviously energetic, which leaves me with hope he’ll be heading the company for a long time to come.
Robbie Schingler - Co-Founder & CSO
Schingler is the business-oriented founding member - I always like when founders can balance each other out and provide both product and business savvy. In Schingler’s case, he actually did graduate with a bachelor of science in Engineering Physics with a specialization in aero & astronautics before completing an MBA at Georgetown University. It was Schingler who initially pivoted the business towards the lucrative SaaS model and upended the traditional way of charging for satellite imagery.
He, too, went to work for NASA, as well as holding several other positions that included ‘Space Security Consultant’ and authoring or co-authoring several research papers on things like ‘Space-based Strike Weapons’ (it’s as cool as it sounds). He returned to NASA after this position and worked his way up to Chief of Staff in the office of NASA’s CTO.
I’m not sure what witchcraft Marshall had to pull to hoodwink him from that position, but he wrangled him regardless. Schingler is now the Chief Strategy Officer of Planet and helps to determine the company’s overall vision and steps towards achieving its goals.
Chris Boshuizen - Co-Founder & Former CTO
Boshuizen was one of the original founders of the company and held down the Chief Technology Officer role until late 2015, when he left and seemed to take a short hiatus from the sort of things that make it on a LinkedIn profile. He took a job at RocketLab in 2016, and now works as an advisor to young space companies.
There was no dramatic reason behind his leaving the company; as CTO, he felt his job was mostly done once all the satellites were launched and left to start life anew long prior to Planet going public.
The company culture at Planet seems awesome - I’d be lying if I said I didn’t briefly look at trying to get a job with them (unfortunately I’m fully unqualified to even bring them coffees). Their organization revolves around their mission to make Earth observation data accessible to drive positive change for industry and environment across the globe and “accelerate humanity toward a more sustainable, secure, and prosperous world”.
In addition to this, they strive to make information their data objective and scientifically accurate, open and accessible, and their platforms non-exclusive. While most companies make these kind of phony statements on their Ethics page, I can truly believe it with Planet - their Glassdoor reviews rave about company culture and integrity. Overall, I’d say Planet fosters an open culture that allows innovation and pushes for goodness.
Ok, enough of Planet the business. Time to get to the investment opportunity - are we going to make money off this thing?
It’s difficult to value Planet - they are neither income nor EBITDA positive, and don’t earn free cash flows to run a DCF. So we’re going to model Planet based on its revenues.
At the time of this calculation (July 13, after market close), Planet was trading at a market cap of $960m and earned $191 in revenues for FY22, giving it a current P/S ratio of 5.0; revenues are expected to grow ~35% to between $248M - $268M for FY23 - taking the midline target of $258m, this gives Planet a forward-looking P/S ratio of 3.7.
Running some very primitive, caveman-like modelling through to 2028 based off this;
I assume a 21.5% CAGR on revenue growth out to 2028 (declining from 30% YoY growth in 2024 to just 15% YoY in 2028)
I assume a multiple compression from the forward looking P/S - 3.7 down to 2.5
I arrive at a terminal value market cap of $1.71bn
This value over a 5-year time period would imply: 12.24% CAGR through to 2028
I normally aim for companies that are going to earn me +15% CAGR (based on my caveman modelling), but I waived that rule for Planet for a few reasons; a) my estimates there are fairly conservative - if Planet continues to grow revenues and become a dominant player in the industry, their business is going to be more richly valued, not less (that same model assuming valuation expansion to a P/S of 5.0, rather than a compression to 2.5, sees a CAGR of 29%); b) I genuinely do believe, based off my research into this company, they are a leader in their space with a meaningful competitive advantage; and c) Planet is a company doing some good in the world - I’m willing to set aside my rule for this company because it sometimes feels rare that personal values and making money align in the investing world. 12% is still market-beating returns based on the 30-yr historical average for the S&P 500, so I will content myself with that.
Now turning to some people who don’t care about how ‘good’ a company is, let’s take a look at what analysts are predicting for Planet stock;
Not too shabby! Going off the July 14th closing price of $3.48;
Low: $5 - +44% upside
Average: $6.36 - 83% upside
High: $8 - +130% upside
Analysts are clearly feeling pretty optimistic about Planet given those price targets - as always, I’ll make my friendly reminder that analysts tend to be wrong like the rest of us humans, and are typically rather short-term oriented in their viewpoint. There are a number of things that could stop Planet from achieving these lofty returns;
Threats to Share Performance
Macro-economic conditions - Rising interest rates may pull the purse strings tight for Planet’s customers, reducing the amount they’re willing to spend on Planet’s products and thus lowering the growth outlook for Planet Labs.
Launch contracts - Planet does not launch its own satellites. This makes it entirely beholden to launch providers to send their satellites into space. If these companies decide they don’t like Planet or need to significantly increase their prices to send Planet’s payloads into space, Planet could face significantly higher costs of revenues and potentially a slower deployment of their Pelican models or replacements for defunct satellites.
Regulation - This is still a very young industry. While Planet has not been subject to strict regulations surrounding their business yet, this could change as the space market continues to grow and concerns ramp up on the international front. There may be worries about the legality of space monitoring without strict rules or laws, prompting regulators to move in and tighten the noose around Planet’s business model.
SPAC Offering- SPAC offerings are generally seen as being unaligned with shareholders - they are prone to overvaluation, pump-and-dump schemes by the associated special acquisition company, and lax oversight compared to traditional IPOs. For that reason, I see the fact that Planet had to come public via SPAC a little bit alarming, but not thesis breaking.
Not Hitting Sales Targets - Planet expected to be free cash flow positive and hit 47% YoY growth in revenues in 2023, increasing to 51% in 2024 and 54% in 2025. Their most recent quarter’s YoY results of 31% growth fall… well, short. And they lowered guidance down to just 20% for the rest of 2023 as well, citing macro-economic headwinds that were slowing down customer spend. While this may be a case of the company guiding conservatively so as to outperform low expectations, it could also be a sign that their products don’t offer enough value to their customers to be non-negotiable spending. The slightly negative NDRR for Q1 may also be representative of this. It would also significantly decrease my previous model for growth through to 2028. If these headwinds keep up, the company will take much, much longer to grow - if it can at all.
Young & Smart CEO - As I touched on, Will Marshall is a young fella for a CEO, in just his mid-forties. He is clearly energetic and passionate about his work, and has done a good job creating a company culture. His age should give him lots of time to stick with the company. He was also recognized at the World Economic Forum as a top Young Global Leader, which is kind of a big deal.
Mission-driven - Everything Planet related is done with their mission at its core. I know this, because I’ve visited about 100 different Planet related pages and investment filings for this research and they all had the company’s PBC mission front and centre. Every. Single. One. I will likely have it stuck in my head for days, like some sort of perverse, tuneless ear worm.
Partnerships - Partnerships with much longer firms speaks to how those companies view the growth potential and product quality for Planet moving forward, and should serve as a catalyst for future growth.
Planet in the Media - Planet seems to pop up quite often in the media for one space image or another, for instance with the weather balloon and ongoing Russia-Ukraine monitoring. This isn’t really significant for Planet’s bottom line, but could help to spread awareness of the product and its potential use cases.
The Short Story
Planet is a leader in satellite imagery, with the largest constellation in orbit today and only continuing to grow. It is part of a rapidly growing and evolving space industry and providing real-world solutions to a huge number of industries and for a wide variety of use cases, evidenced by their growing customer count. Their analytics add value for customers by allowing deeper insights and reducing boots-on-the-ground costs. They have also, I believe, built a moat through the size of their satellite constellation, a data advantage that many investors are failing to appreciate, and their agile aerospace model, and continue to distinguish themselves from potential competitors by developing their software stack.
They are, however, also a very young and unproven company trying to grow in a tough macro-economic environment that has not been kind to them nor their stock price. Though they are mission-driven and headed up by a very intelligent, founder-led management team, it’s unclear whether this will be sufficient to grow the business enough to reward shareholders. Furthermore, their products are very much in the grey area - being the first-mover in an industry can have advantages, but also disadvantages in that the true value of their products aren’t super clear to us at this point.
I believe this business has the potential to strongly reward patient shareholders over the long-term, but it may take a while to see the company through this macro-economic environment. I myself am a shareholder, so I may be biased towards the company, but I hope my research has provided you with enough data to form an opinion of your own and a basis from which you can further pursue the company or drop it off your watchlist. With that, let’s close with Planet Lab’s report card;
Final Grade: B+
Hope you enjoyed, happy investing folks!