Planet Labs (PL -0.93%) has caught my eye very early in its journey as a public company. The company came public via a special purpose acquisition company in early December 2021, yet it has already fallen over 50% to less than $5.50. Despite this fall, the company has some strong competitive advantages. 

Planet owns and operates the largest Earth-imaging satellite fleet, with nearly 200 satellites taking pictures of the world today. This fleet has allowed the company to take a picture of every single landmass in the world, every day -- giving Planet unrivaled information. The company has also earned the trust of governments, and all these advantages have made it appear impressive. Although, there are a few things that investors might like to see change within the business before placing a position in this stock. 

Person thinking about a problem at a desk

Image source: Getty Images.

1. A transition to analytics

As of today, Planet mainly makes its money off a subscription for access to images of specific regions. The company touts its ability to have its images ready for machine learning and analysis to be done on them. However, it would be exciting if Planet developed artificial intelligence and machine learning capabilities within its business so that it could analyze images for its customers. Simply selling images can lead to slower growth, which can be seen in the financials: Planet's net retention rate is a mere 105%, and its year-over-year revenue growth is lumpy and inconsistent.

The company is taking steps in this direction, looking toward creating a platform on top of its extremely large data set to produce insights from its data, and it recently acquired VanderSat to help with this. VanderSat is a data analytics platform for the agriculture industry, and Planet hopes to use its data science team to develop an in-house analytics platform for its entire customer base.

Investors should keep an eye out for press releases and comments on conference calls explaining how the VanderSat integration is going. Also, they should be looking for clues about the development of an analytics platform. This could still be a year or more away, but if the company can become more of an analytics platform than a data collection company, the future could be much brighter.

A shift toward analytics would help the company in multiple ways. Not only would that likely make its platform more valuable for its customers -- which would reduce customer churn and smooth out year-over-year revenue growth -- but it would also likely result in faster revenue growth. Additionally, Planet would also likely see a major improvement in its retention rate. If customers expand their relationship with Planet, the company will likely see growth in revenue per customer. 

2. Customer growth

This shift to analytics would also likely expand its customer count. After all, some potential customers might want to use Planet's images to optimize their businesses, but they may not have the geospatial experts or the machine-learning capabilities to analyze these images in-house. If the company began to offer this service, it may attract many more customers, which is another thing to watch for before investing.

The company has some slight customer concentration. In the fiscal year 2021 (the calendar year 2020), two customers accounted for 13% and 10% of revenue, respectively. While this might not seem like much, if either customer were to leave, it could hurt the business. Something like this has already happened at Planet: In Q3 of this year, Planet lost a major contract due to a "government takeover by an unsanctioned regime." Customer growth has been strong recently, reaching 742 customers in Q3 and growing 32% year over year, but this customer growth could explode with the expansion into analytics. 

3. Improving cash flow

While a company's net loss is not incredibly important to investors with a company this early in its growth stages, typically people prefer to see positive cash flow generation. When a company is this young, it could be beneficial to see a company reinvest in itself to continue growing and developing as a business. This would likely satisfy investors when a company isn't generating net income but has a significant cash flow. 

In the first nine months of 2022 (the calendar year 2021), the company's free cash flow was negative $30 million. This has improved from the year-ago period, for which it posted a free cash flow of negative $52 million, but I personally want this metric to continue moving in the right direction before I invest. If the company can grow its customer count and increase the value of its platform, it would likely result in positive free cash flow. 

When to jump in

At just 11 times sales, this company is trading at a bargain right now. Nonetheless, I believe that the current potential is still too low for me to invest. But for an investor with an extremely diversified portfolio, and that is comfortable with taking a couple of long shots, this stock might be one to consider. 

The company has amazing and unparalleled competitive advantages, and the industry has very high barriers to entry, but until the company shows me it can be more than simply a data provider, I am going to shy away.