Shares of Planet Labs PBC (PL +16.84%), the space SPAC and operator of the world's biggest constellation of Earth observation satellites, lit up like a rocket on Tuesday, soaring 15% over six-and-a-half hours of frenzied trading.
The reason: Earnings.
NYSE: PL
Key Data Points
Planet Labs by the numbers
Heading into its fiscal second quarter of 2023, analysts had forecast that Planet Labs would continue losing money -- $0.16 per share -- on sales of $42.4 million. The analysts were one-third right about that.
Planet Labs did lose money in the third quarter. But the $0.07 per share the company lost was less than half what Wall Street expected it to lose. And the $48.5 million in revenues that Planet collected surpassed expectations by a good 14%, representing 59% year-over-year sales growth for this space company -- twice as fast as the growth seen in the first quarter.
Perhaps best of all was Planet's update on profitability. In contrast to management's prediction last quarter that Q2 gross profit margins would be about 45% (and pro forma at that), Planet turned in a 48% gross profit margin in Q2 -- and this was generally accepted accounting principles (GAAP).
What it means for investors
To put that number in context, when I last spoke with Planet management in 2021, just prior to its IPO, the company was hoping to grow gross profit margins from 40% (then) to 74% (in 2025). 48% isn't yet 74%, granted -- but Planet is moving in the right direction, has achieved about one-fourth of its hoped-for margin improvement in one-fourth of the time allotted -- and looks to be on track toward its goal.
On the other hand, not everything is working out entirely according to plan. Take revenue growth, for example. As noted above, it was pretty fantastic in Q2 (if less so in Q1). But even so, pre-IPO, Planet was telling investors to expect $191 million in total revenue in fiscal 2023 (this year is "fiscal 2023" for Planet).
So how is Planet doing on that score?
Better than it was doing last quarter -- but still not as well as one might hope. Predicting that sales will range from $45 million to $48 million in Q3, Planet proceeded to raise its revenue guidance for this full year to somewhere between $182 million and $190 million. Management noted that this works out to about 42% year-over-year growth "at the midpoint."
The problem is that it falls short of the 47% growth rate that Planet was hoping, pre-IPO, to hit in fiscal 2023. And the entire range of the company's new revenue forecast falls short of the $191 million revenue target that the company had set for fiscal 2023, again, pre-IPO.
The future for Planet
As a Planet shareholder myself, I have to admit that these predictions are a little disappointing -- especially coming less than a year after the company made more optimistic promises to its shareholders. That being said, even 42% growth is a whole lot better than the 18% sales growth Planet enjoyed in fiscal 2021 and the 16% growth experienced in fiscal 2022. While Planet isn't growing quite as fast as it promised, it is still accelerating its growth rate as promised, adding new customers (up 17% in Q2) and growing its "net dollar retention rate" on those customers' spending (up 125% in the quarter).
Assuming management continues to deliver on that promise to accelerate its rate of revenue growth, whether the precise rate is 42%, 47%, or 51% (the revenue growth rate promised for fiscal 2024) may not be as significant as the fact that acceleration is happening.
I might raise one final concern, though: While Planet's revenues are growing, its expenses are growing even faster. While growth in "cost of revenues" at Planet was a mild 25%, operating costs at the company have roughly doubled so far and are continuing to outpace revenue gains.
Ultimately, for Planet to deliver fully on its promise and pay off as an investment, management needs to get costs growth under control at the same time as it maintains sales growth. That would be a tricky task for any growth company. I'll be watching closely in future quarters to see if Planet can make it happen.
