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This Recent SPAC Is My Favorite Breakout Stock for 2022

By Josh Kohn-Lindquist – Jan 12, 2022 at 7:55AM

Key Points

  • The quick scaling of its operations gives it a strong first-mover advantage.
  • Continuing to iterate its products, the company offers unmatched data and insights.
  • This young stock is just beginning to build out its suite of products.

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This newly public stock is years ahead of its competition.

Making its debut on the public markets in December of 2021, Planet Labs (PL 0.87%) became yet another on a long list of special-purpose acquisition corporations (SPAC) to go public over the last couple of years. Through its combination with dMY Technology Group IV, Planet Labs received an infusion of nearly $600 million cash and immediately popped up on my radar thanks to its one-of-a-kind operations. 

Planet Labs joins the ranks of a select few stocks that operate as public benefit corporations (PBCs) -- joining the likes of Veeva Systems, Lemonade, and AppHarvest. By becoming PBCs, these companies must act as upstanding, socially conscious capitalists, focusing on the best wishes of all stakeholders first, with resulting profitability being a byproduct.

With its focus on conscious capitalism and a bit of sales growth, it could quickly become a breakout stock in 2022.

A pair of hands cupped together holding the planet Earth.

Image source: Getty Images.

What does Planet Labs do?

Driven by its mission "to use space to help life on Earth," Planet Labs and its fleet of over 200 satellites take images of our home planet daily -- to the tune of 25 terabytes worth of data every day. This fleet of satellites is 10 times larger than the company's next-biggest competitor and allows for parts of the Earth to be updated 10 times a day.

Importantly for investors, this data is entirely machine-learning ready, providing immense value to companies across various industries. Those industries include agriculture, civil, defense and intelligence, mapping, forestry, energy, and more. Planet Labs has already begun equipping satellites with hyperspectral sensors that can monitor global emissions -- information that could be hugely valuable to governments worldwide.

Operating squarely within two multi-trillion-dollar megatrends, the digital transformation, and the sustainability revolution, Planet Labs has the potential to be one of the most important companies of our time. However, it is still very early on in the company's long-term growth story, and a lot still needs to be proven by management. Despite this inherent risk, there are several reasons that I am willing to look past my "no-early-IPOs" rule when it comes to Planet Labs -- let's take a look at why this is so.

Why start a position now?

I have found four specific reasons that make me comfortable with a tiny starter position in this PBC, and they are:

  1. First-mover advantage.
  2. Scalable operations.
  3. Recurring revenue with high margins.
  4. Sales growth flywheel potential.

First up, Planet Labs faces no shortage of competition but has a daily coverage area 10 times that of its next closest competitor, Satellogic. The company also generates five times the revenue of its most prominent peer, Black Sky Technology. In addition, Planet Labs already has over 700 subscribing customers, giving it a large installed base to continue growing and innovating alongside. 

Second, the company's operations are highly scalable, and most of the expensive start-up costs are now in the past. Having already built out the infrastructure needed for its one-to-many platform, Planet Lab's treasure trove of data has a seemingly infinite range of potential applications -- making its list of potential customers hard to fully fathom. 

Next, Planet Labs receives over 90% of its annual contract value from predictable subscription and usage-based modeling. This data-based subscription model allows management to estimate that new sales should generate roughly 94% in direct margins. Already generating a positive operating cash flow over the trailing 12 months, this high-margin potential has positioned the company beautifully to post strong profitability for shareholders over the long term.

Finally, Planet Labs is still learning what exact applications and abilities its customers would like to receive from its data. This process makes the company a unique land-and-expand candidate as the company and its customers are still building their relationship. Planet Labs could open up future growth avenues through its budding network of applications by simply having its foot in the door with its more basic products.

Watch Planet Labs' dollar-based net retention rate

Due to Planet Labs' focus on conscious capitalism, its one-of-a-kind operations, and the four reasons shown above, some investors might be eager to own a few shares early -- just to get some skin in the game. While volatility will inevitably be high for the young upstart, its market capitalization, or company price tag, of $1.4 billion could be far too small compared to the megatrends it operates within.

As we move forward, it will be essential to watch Planet Labs' dollar-based net retention rate (DBNR) and ensure it trends above 100% in the coming quarters. DBNR measures the rate at which a company's customers expand their usage of its products, including overall customer churn. Anything above 100% is acceptable, while 120% and above is exceptional. As of the third quarter of 2022, Planet Labs had a DBNR of only 98%, making this a hugely vital metric to see growth from going forward.  

Josh Kohn-Lindquist owns AppHarvest, Inc., Lemonade, Inc., Planet Labs PBC, and Veeva Systems. The Motley Fool owns and recommends Lemonade, Inc. and Veeva Systems. The Motley Fool recommends AppHarvest, Inc. The Motley Fool has a disclosure policy.

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