Shares of the leading Earth observation satellite services company Planet Labs (PL +2.20%) are down 35% this week after the company reported first-quarter earnings and announced an equity offering on Friday. Starting with Planet Labs Q1 earnings -- things weren't nearly as bad as this week's decline might suggest. The company:
- increased sales by 42%
- grew its backlog by 72% to over $900 million
- maintained a solid net dollar retention rate of 114%
- continued to generate positive cash from operations
- raised its full-year guidance to grow revenue by 41%
However, if you type "priced for perfection" into your favorite LLM, it might generate a picture of Planet Labs' stock chart after its shares rose eightfold over the last year, before this week's decline.
NYSE: PL
Key Data Points
The market wanted extraordinary results from Planet Labs, but it earnings were "only" above average, which helped spur today's decline. It simply had very lofty expectations.
Image source: The Motley Fool.
Making matters worse, management announced a $1.5 billion equity offering today alongside earnings, which, if fully executed, could dilute shareholders by 9%. So some of today's decline also comes from that. While it does dilute value somewhat today, I'd argue that it is a brilliant move from management, as they can raise funds from the company's skyrocketing share price over the last year. Rocket Lab held a similar equity raise as its share price rose over the last year, and this can prove to be a shrewd move for growth stocks, provided what they spend the money on is a sound investment.
Ultimately, Planet Labs remains a fascinating stock in my eyes. It is sending Nvidia AI compute power to space to process imaging at the satellite, saving money on the vast amount of data and imaging that previously had to be beamed back to Earth. However, Planet Labs still trades at 32 times sales -- even after today's decline. As it wrestles to improve profitability over time, the stock will undoubtedly remain volatile at this lofty valuation. Interested investors should buy in small batches over time rather than going "all-in" at today's valuation.
