What happened
Shares of Planet Labs PBC (PL 2.83%) -- a space company you probably never heard of, and the owner of the world's largest constellation of Earth imaging satellites -- plunged 18.2% through 11:10 a.m. ET on Wednesday. The reason was earnings.
Heading into Planet Labs' first-quarter 2023 earnings report last night, analysts were expecting a loss of $0.15 per share on sales of $39.5 million. As it turned out, Planet Labs missed the first target, losing $0.17 per share, even as it beat on revenue with sales of $40.1 million.
So what
Sales surged 26% in the first quarter, which, as management pointed out, was an acceleration from the 23% growth achieved in the fiscal fourth quarter of 2022 and the 16% rate for all of fiscal 2022.
Management forecast even more growth, promising a leap to 38% year over year in the second quarter as the customer head count continues to increase. Planet says it now has more than 800 customers signed up, and 92% of its contracts are being renewed annually.
Now what
Revenue growth isn't really Planet's problem, however, as indicated by the earnings miss. The company noted that its gross profit margin improved by only about 1 percentage point to 41% in the first quarter, although management said its adjusted gross profit margin was 45%.
The chances of profit margins improving in the second quarter, meanwhile, look iffy. Management gave only an adjusted-margin forecast: 44% to 46%, so roughly equal to the first quarter. On the other hand, for the full year, Planet is saying it will resume growing profit margins, to somewhere between 47% and 49% -- but again, on an adjusted (non-GAAP) basis.
Unless investors shift their focus back to revenue growth, Planet's stock price recovering will probably depend on whether management can deliver on its promises of better profit margins later this year.
