Editor's note: This article has been updated. Planet Labs has no debt. The 49% gross margin was a GAAP number. 

I really hate to say this, but Planet Labs (PL 4.96%) stock is turning into a real disappointment -- and with Planet Labs stock still down 9% after its earnings report earlier this month, it seems I'm not the only one being disappointed.

If you recall, two years ago, on the cusp of its IPO, I had high hopes for Planet Labs, a tiny, then-private space company that curiously possessed for itself the world's largest fleet of Earth observation satellites in orbit. Planet Labs, you see, had high hopes for its post-IPO lifespan, predicting that from 2021 through 2025, the company would roughly quintuple its annual sales from $130 million to nearly $700 million and nearly double its gross profit margin on those sales from 40% to 74%.

It's not working out that way in practice. By 2023, for example -- or fiscal 2024, as Planet calculates such things -- sales were supposed to tip the scales at $289 million, up 51% from the previous year, and with profitability improving, the company should be starting to generate its first positive free cash flow right about now. But here at the halfway mark in Planet Labs' fiscal year, it's not looking likely that Planet Labs will hit either of those goals.

Planet Labs by the numbers

Planet Labs reported its fiscal Q2 2024 earnings results earlier this month. So how did it do?  

The company boasted of achieving record quarterly revenue of $53.8 million, which was a good start -- but given that the company was predicting 50%-ish annualized growth year after year in 2021, "record" revenue was to be expected. The issue is whether Planet Labs' revenue was as big as was first promised.

It wasn't.

In fact, so far this year, Planet Labs has produced only $106.5 million in total revenue, and management projects it will end the year with no more than $223 million in revenue -- far below the $289 million initially projected.

It's a similar story with profit margin. On one hand, Planet CEO Will Marshall noted that gross profit margin for the quarter "outperformed for the quarter." On the other hand, the 49% GAAP gross margin that the company reported, two years after its IPO, is only several points higher than the 40% GAAP gross margin it hit in early 2021. It's also still very far away, unfortunately, from the 74% (non-GAAP) gross profit margin originally projected for 2025 -- and not really trending higher fast enough to give confidence that this goal will be reached.

Free cash flow promises evaporate

Most disappointing of all, while Planet Labs made no specific reference to free cash flow in its guidance, management is forecasting an "adjusted EBITDA loss" of some $13 million to $15 million this year. And given that it's also projecting capital expenditures of at least 22% of revenue (so $49 million), it appears that free cash flow will remain deeply negative this year. For what it's worth, most analysts that follow the company are forecasting cash burn on the order of $53 million.

And according to analyst projections collected by S&P Global Market Intelligence, this situation could stretch out for some time to come. Planet Labs is now not expected to turn even minimally free-cash-flow-positive before 2026.

The upshot for investors

So what should investors expect down the road from Planet Labs stock? I'm afraid the news here is rather depressing. Absent a sudden acceleration in revenue growth to offset operating costs and capital investment requirements, there seems little hope that Planet Labs will at any time in the near future become a company able to sustain itself on the free cash it generates internally.

Now, the good news is that it doesn't necessarily have to. There's certainly a chance that revenue will accelerate. News of billions of dollars of National Reconnaissance Office contracts, awarded to Planet Labs and its competitors BlackSky and Maxar back in 2022, for example, gives hope that a wealth of new revenue could begin to materialize at any moment and drive Planet Labs' numbers higher. And in the meantime, with cash reserves of nearly $368 million and no debt, Planet Labs actually has the wherewithal to live off its savings, refrain from any new stock sales or debt raises, and continue burning cash at its present rate for years to come.

The sad fact, though, is that judging from how things have been going lately, Planet Labs may need to do exactly that.