Earnings season is in full swing. Having a core number of stocks to watch closely can help investors dig out insights from their favorite companies, and that is what I am doing with Coinbase (COIN -4.28%) and Planet Labs (PL -0.62%).
These two companies have pivotal earnings reports coming up. Coinbase has seen incredible growth in the past few months, but there are concerns about this kind of growth continuing after what seemed like a frenzy in the cryptocurrency market that has recently cooled.
On the other hand, Planet Labs, an Earth-imaging company, is looking to develop analytics tools in-house for its customers to facilitate growth. But that can be easier said than done. Nevertheless, if both companies can execute their respective strategies, I will be more interested in their stocks, even adding them to my portfolio. Neither company has reported an earnings date as of this writing, but I will be watching these companies closely.
Coinbase: Continued growth ahead?
As a leading trading exchange with over 73 million users on its platform, Coinbase was a major beneficiary of the cryptocurrency craze in 2021. Not only did traders begin to speculate in this industry after the meme stock debacle, but long-term investors also dipped their toes into the market, and Coinbase is one of the primary places investors went.
The company's monthly transacting users skyrocketed from 2.1 million in Q3 2020 to over 7.4 million in Q3 2021, which boosted its financial outlook. In Q3 2021, Coinbase reported revenue growth of 330% to $1.2 billion. With over $5 billion in custodial funds added to the company's platform, Coinbase reported a free cash flow of $7.7 billion for the first nine months of 2021.
Many investors, however, do not think this can last. Coins like Bitcoin (BTC -4.74%) and Ethereum (ETH -5.84%) are more than 40% off their all-time highs, and this could result in many traders who joined recently selling out and leaving the market. With fewer users and less activity, Coinbase -- which generates its revenue per transaction -- could be hurt and could see its growth slow or even decline.
More optimistic investors believe that this crypto rise and fall will not be like past cycles and that investors who joined in early 2021 will ride this one out. If investors do not slow or stop their trading activity, Coinbase could continue seeing major growth and maintain its stellar financial position. However, both the bull and bear investors of Coinbase can agree that the company's ability to maintain its users, growth, and volume on its platform will be critical over the coming quarters.
As a potential investor, I will be looking to see how Coinbase's transacting users and trading volume growth compare to Q3 2021. If these metrics show a decline, revenue will likely fall as well. However, if Coinbase can prove its leadership in the industry is so strong that it can retain users and activity even during a crypto crash, that could indicate immense strength for the business into the future. After all, if its users are loyal to Coinbase during a market downturn like today, that could mean the company holds a lucrative customer base, and I would be very willing to invest in a company with that competitive advantage.
Planet Labs: A pivotal shift to analysis is needed
Planet Labs also has a critical quarter coming up. The company is the leading player in the Earth-imaging industry, with over 200 satellites in orbit today. Planet Labs has the largest imaging fleet in history, allowing the company to take images of the entire world every single day. The company has thousands of images for nearly every part of the world dating back years, which gives Planet a dataset that its competitors (literally) cannot recreate. As a result, the company has attracted over 700 customers and $124 million in trailing twelve-month recurring revenue.
Right now, the company is merely a data collection platform. Its business collects the images and sells them "machine-learning ready" to its customers, but Planet itself does not have any analytics tools. Management has stated that its inability to analyze its images does hurt the business by locking out smaller customers who would otherwise buy Planet data. However, the company is making strides toward changing this. It is working on developing tools to derive insight from its images. This would not only open its services up to more customers, but it would also increase the stickiness and value of Planet's platform to its customers.
At 12 times trailing sales, this company is not valued for major success. This analytics software would likely be high-margin, meaning most of the extra revenue it brings in would go toward the bottom line -- which is not pretty. In the first nine months of 2021, the company lost $91 million. If the company can make progress on this innovation, however, it could be one step closer to net loss improvements, stronger revenue growth, and higher gross margins, which is when I would be extremely interested in investing.