As with almost all tech stocks over the past six months, share prices of data warehousing company Snowflake (SNOW -1.61%) and Earth-imaging company Planet Labs (PL -3.30%) have been crushed, falling 69% and 51.7%, respectively, off their all-time highs set in late 2021. However, the sharp price drop is mostly because of uneasy market sentiment, rather than fundamental execution by the companies.
Considering both businesses have performed well financially, their stocks seem rather appealing today. Snowflake and Planet Labs are making it evident that their adoption is growing, and with shares down so much, it could be a great time to buy shares of these two innovative growth companies.
Image source: Getty Images.
1. Snowflake
If businesses store data on multiple data clouds -- like Microsoft Azure and Amazon Web Services -- it can be hard to analyze those data sets together, leaving room for missed insights. Snowflake, however, allows businesses to consolidate data to a single source to organize and learn from data -- an opportunity the company believes is worth $90 billion today.
Neutrality is what makes Snowflake unique and it gives time and convenience back to the customer. As you could anticipate, this has caught fire: At the end of fiscal 2023's first quarter (ended Jan. 31, 2022), Snowflake had more than 6,300 customers, up 40% year over year.
In January 2022, Snowflake processed 1.5 billion daily queries on average, compared to 777 million in the year-ago period. This is expanding much faster than its total customer count, meaning that customers are increasing their usage of Snowflake's services. Snowflake operates a usage-based model where businesses pay every time they analyze data. With businesses analyzing more data than ever before, this model has paid off. In Q1, the company grew revenue 85% year over year to $422 million.
Importantly, its remaining performance obligations grew 82% year over year to $2.6 billion in Q1. In other words, businesses have contractually agreed to spend $2.6 billion in the future, so this will eventually turn into revenue. This signals how recession-proof the data industry is. Even with worries of a recession on the horizon, businesses know that data analytics is mission-critical to firms no matter the economic environment.
Snowflake expects to reach $10 billion in product revenue in its 2029 fiscal year, which is a steep climb from the $1.9 billion it's forecasting in fiscal 2023. Investors should be aware, however, that if a competitor (Microsoft or Amazon, for instance) can make data analytics more seamless or provide a better value, it could dampen Snowflake's adoption prospects and slow growth drastically.
Despite the price drop, the stock is still not cheap and trades at 28 times sales, so the best way to invest would be to dollar-cost average across lower valuations over time. Regardless of its valuation, however, if the company can capitalize on the expanding amount of data worldwide, investors will want to own this company for the long haul.
Image source: Getty Images.
2. Planet Labs
Planet Labs' stock trades at a much lower valuation than Snowflake at 13 times sales, despite doing something equally as intriguing: It takes daily pictures of the entire planet. This space stock has enough satellites in orbit to image the whole Earth's landmass daily, making it the largest Earth-imaging fleet in history. Planet then sells the images to its 770 customers to use as the customer desires.
Planet Labs has a resilient competitive advantage in the space: its scale. Because of this, Planet has a library of images that -- unless a rising competitor can go back in time to take pictures from yesterday -- is unreplicable. As a result, Planet has become a clear winner for customers looking for the most extensive Earth image data over time.
This advantage recently paid off when the company won the Electro-Optical Commercial Layer (EOCL) contract -- the U.S. government's industry-defining procurement vehicle for unclassified commercial satellite imagery. This contract will last up to five years, with the option to extend it to 10. Winning contracts like this illustrate the payoff of Planet Labs' industry edge.
The company may have scale, but it is still a relatively small operation. It is guiding for revenue of just $180 million in its 2023 fiscal year (which ends Jan. 31, 2023). Investors should be aware that Planet Labs is an unprofitable, cash-burning business at the moment. In its 2022 fiscal year, the company lost $137 million and used up $57 million in free cash flow on expansion efforts. With its capital-intensive operations, it will need to redeploy satellites into space to replace older ones often, so long-term profitability is not a guarantee.
If Planet Labs can gain more customers faster than it has to redeploy satellites, that could improve its chances to be profitable. The company is also looking to develop an in-house artificial intelligence solution to analyze the images for its customers, making its services available to a broader set of customers -- not just geospatial experts. This opportunity could bolster its evolution over the long term, and with its cheap price today, Planet Labs looks like an appealing under-the-radar company to own.
