Two years ago, with just months to go before its IPO, then-space SPAC Planet Labs (PL -3.30%) made some pretty amazing promises to investors. After growing sales just 18% in fiscal 2021, and an even slower 15% in fiscal 2022, this operator of what's already the world's largest constellation of Earth-observation satellites -- more than 200 satellites in orbit already -- would absolutely stomp on the accelerator post-IPO. Planet Labs would accelerate to 47% revenue growth in fiscal 2023, then 51% in fiscal 2024, then 55% in fiscal 2025... before leveling off and posting 54% growth in fiscal 2026.
So how are these plans working out for Planet Labs?
Planet Labs by the numbers
Investors got their latest insight into how well Planet Labs' performance is meeting promises late last month, when the space company announced financial results for its fourth and final quarter of fiscal 2023. The bad news is that Planet Labs didn't quite meet expectations last year. The good news is that it got pretty darned close.
For all of fiscal 2023, Planet Labs delivered record revenue of $191.3 million, up 46% year over year. Management also reported strong gross profit margins of 49%, up from 37% in fiscal 2022 -- but still some way to go to reach management's ultimate goal of 74%.
What comes next
That's the good news. Now here's the somewhat less good news.
While CEO Will Marshall called 2022 "an incredible year" for Planet, and CFO Ashley Johnson assured investors that Planet is "driving efficiency across our operations," "focused on our path to profitability," and looking forward to "a solid Fiscal 2024 ahead," in at least some respects, the coming year (fiscal year 2024, which is to say calendar year 2023) is probably going to fall pretty far short of expectations.
Specifically, Planet told investors to expect no more than $51 million to $54 million in revenue for the fiscal Q1 2024 quarter currently underway (so up only 31% year over year). Furthermore, revenue for the full fiscal year 2024 will top out somewhere between $248 million and $268 million. At the midpoint, that means 35% growth -- better than Q1's 31%, but still a far cry from the "51% growth" that Planet was promising pre-IPO.
Bad news and good news
I have to admit that, as a Planet shareholder myself, I find this forecast somewhat disheartening. Don't get me wrong. 35% revenue growth is, generally speaking, a great number. It's just doesn't feel quite as great when you were expecting 51%.
On the plus side, Planet does seem to be making steady progress with the profit margins it earns on its revenue. Although declining to give a GAAP prediction, Planet said that non-GAAP gross margins this year will range from 57% to 61%, thus drawing steadily closer to that long-term goal of 74%.
But then again on the minus side, Planet Labs mentioned that it expects capital spending this year to approach 20% or so of revenue. Applied to the company's revenue guidance, this appears to imply $50 million or more in capex this year, or more than the total capital investment made across the past three years combined.
The upshot for investors
Suffice it to say this is a pretty large sum for such a small company to be spending, especially in light of the fact that Planet is still not cash-flow positive. Unless something big changes, it would appear that Planet Labs will not in fact be able to generate positive free cash flow this year (or perhaps even next year), as it had suggested it might be able to do back when giving guidance pre-IPO. To the contrary, I now anticipate we will find Planet Labs to be deeply free-cash-flow negative both this year and next.
True, with more than $400 million worth of cash in the bank, and minimal debt, Planet Labs can afford to keep burning cash for a few more years at least. But that's hardly an ideal scenario.
With revenue not growing as fast as expected, and positive free cash flow now looking like it will arrive later than expected as well, I have to admit that I'm now rethinking my thesis that Planet Labs is a growth stock worth owning.
