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Planet Labs (NYSE:PL) is a satellite imagery vendor that has leveraged the opportunity created by small satellites to create a constellation of satellites capable of capturing medium to high resolution data. The company is currently focused on commercial applications, but improving satellite capabilities may open up more defense and government opportunities.
While the near-term looks reasonably bright, particularly as Planet Labs introduces new capabilities, competition could pressure pricing and margins longer-term. Planet Labs's valuation isn't demanding given the size of the market, but this probably reflects investor uncertainty about barriers to entry and product differentiation.
Market
Planet Labs’ constellation of satellites performs daily scanning globally, enabling the company to capture relatively high frequency imaging data.
Within the commercial market, use cases include:
- Pipeline monitoring (leaks, theft, hazards, etc.)
- Insurance claims processing
- Surveying
- Crop yield forecasting
- Monitoring deforestation
- Monitoring construction progress
- Carbon markets
Governments use satellite images to track security risks and respond to disasters like floods and wildfires. Satellite imagery also has broad applicability in defense and intelligence.
Figure 1: Potential End Market for Images (source: Planet Labs)
Planet Labs believes that there are a number of tailwinds driving demand for its solutions, including:
- Digital transformation
- Climate change
- Increased frequency of natural disasters
- Biodiversity loss
- Geopolitical tensions
As a result, there is a large and growing market for satellite data. BlackSky (BKSY) expects its TAM to reach $40 billion in 2025. In comparison, Euroconsult estimates that the market for Earth observation data and value add services will be $7.9 billion USD in 2031, with around half of this coming from defense.
Figure 2: Planet Labs TAM Estimate (source: Planet Labs)
While declining launch costs have created an opportunity for companies like Planet Labs, it has also lowered the barrier to entry, potentially increasing competition in the future.
Data can provide a barrier to entry, provided the data has sufficient volume, variety and velocity, and that data retains over time. Analytics increases the value of raw data and also provides an opportunity to create differentiation. In addition, a data service can be sticky if it is built into mission critical workflows.
Figure 3: Satellite Launch Costs (source: Created by author)
Low earth orbit satellite imaging is also being driven by improvements in satellite capabilities. As a result, Planet Labs on-orbit capacity is constantly improving in capability and quantity, which can clearly be seen from the downlink data rate of Planet Labs' Dove satellites.
Figure 4: Dove Downlink Data Rate (source: Planet Labs)
While there is a large opportunity long-term, conditions are currently soft, with Planet Labs suggesting that it saw a downtick in the commercial sector in Q1, driven by larger agricultural customers. This is somewhat interesting given the amount of hype surrounding AI at the moment.
Planet Labs
Planet Labs’ PlanetScope constellation consists of around 200 satellites, enabling the company to downlink and process 4 million images per day. In addition to its satellite constellation, Planet Labs has 16 ground station network sites, with over 40 antennas that are both leased and owned. PlanetScope images are approximately 3 meters per pixel resolution. Planet Labs captures in excess of 30 terabytes of data each day and the company’s archive contains more than 50 petabytes of data, with over 2,400 layers of collection for each location dating back to 2014.
Planet Labs has iterated through Dove Classic, Dove-R and SuperDove satellite models. The company also has higher resolution SkySats, which came through the acquisition of Terra Bella in 2017. There are 18 SkySats in orbit, providing images at 50cm resolution with multiple revisits per day. SkySats are also capable of capturing videos up to 30 seconds in length.
Planet Labs will soon be introducing a hyperspectral satellite, enabling it to acquire 400 spectral bands of data, capturing phenomena that are visible to the human eye. The Tanager Hyperspectral satellite is ready to launch and will be the first of a next-generation hyperspectral fleet, which will expand Planet’s imaging capabilities in the spectral domain to complement its existing imaging capabilities. Hyperspectral imaging is a technique that collects and processes information across the electromagnetic spectrum for each pixel in an image. Objects and materials can then be identified by analyzing their spectral signatures.
CarbonMapper is funding the Tanager program and plans on using Tanager data to pinpoint methane and carbon dioxide emitters globally. Planet Labs also has a $20 million contract with CarbonMapper. CarbonMapper is a non-profit organization that is trying to guide the adoption of digital public goods that can enable actions to mitigate the impact of humans on Earth's climate and ecosystems.
Planet Labs has also successfully completed a tech demo launch of its next-gen high-resolution Pelican satellite. When operational, Planet Labs will add as many as 30 Pelican satellites, performing up to 30 captures per day, with a 30-minute revisit time and 30cm resolution.
Figure 5: Planet Labs Satellites (source: Planet Labs)
Planet Labs offers both images and analytics. Customers are charged for access to images, with pricing based on attributes like resolution, the age of the image and license terms.
Planetary Variables is an example of using analytics to generate more value from Earth observation data, including:
- Soil moisture content
- Biomass data
- Land surface temperature
- Forest carbon stocks
- Field boundaries
Planetary Variables result from complex multi-sensor algorithms combining a number of public missions (including European Union’s Sentinel) with Planet Labs' unique datasets.
The Planet Insights Platform was launched in April. It has been designed as a destination for Earth data analytics and geospatial tools where customers and partners can train and run models and build solutions. The Planet Insights Platform also integrates with other apps and GIS software. This extends the company’s market reach and helps customers to build solutions using Planet Labs’ data.
Figure 6: Planet Labs Data Platform (source: Planet Labs)
Planet Labs doesn't have any ambition to offer satellite services, which appears to be based on a belief that selling data is a more financially attractive business. Maxar's financial performance supports this, but competitive dynamics could change this going forward.
Table 1: Maxar 2022 Adjusted EBITDA Margin by Segment (source: Created by author using data from Maxar)
While most of Planet Labs' capabilities have come through internal development, it has also been an active acquirer. Planet Labs’ SkySats came through the acquisition of Skybox from Google in 2017. Google acquired Skybox for $500 million in 2014, while the business was still embryonic, with an intention of using Skybox for map imagery and possibly internet access and disaster relief down the track. The business never appears to have met Google’s objectives though, with a name change and shift in business model being conducted in 2016.
Planet Labs also recently acquired Salo Sciences to help develop its Planetary Variables offering and accelerate the deployment of its carbon monitoring solution. Salo has built a forest monitoring system that uses AI and multi-sensor Earth observation data. It also potentially has applications in reducing wildfire risk.
In addition, Planet Labs also recently acquired Sinergise, including Sentinel Hub. Sinergise has built a platform to process and analyze Earth Observation data at scale. Sentinel Hub enables advanced time series analytics and change detection and will be leveraged in Planet Labs Planetary Variables solution.
Financial Analysis
Planet Labs generated $60.4 million in revenue in Q1 FY25, an increase of 15% YoY, driven by strength in the government sector. The commercial vertical remains soft though, driven by contractions amongst agricultural customers. The government sector is an area of relative strength at the moment, driven by geopolitical tensions and climate change. Defense and intelligence revenue was up 25% YoY in Q1. At the end of 2023, Planet Labs had multiple seven-figure PlanetScope pilot programs under way or in procurement with the US DoD. Demand from the civil government sector has also been robust, driven by applications like compliance monitoring, regulatory enforcement, risk management and disaster response. This includes the NRO EOCL contract renewal.
Planet Labs believes that large ag customers present a growth opportunity, driven by precision ag applications like variable rate application and crop protection. An example of this Planet Labs' partnership with Bayer Crop Science. Bayer is leveraging Planet data to ensure that farmers optimize their inputs. Digital agriculture apps are loss leaders though and there appears to be an issue creating a business model that works for Planet Labs, its ag customers and farmers.
Figure 7: Planet Labs Revenue (source: Created by author using data from company reports)
Planet Labs expects $59-$63 million of revenue in the second quarter, representing 10-17% YoY growth at the midpoint. Growth is expected to be driven by government opportunities, pilot programs converting to operational contracts and partner solutions contributing to revenue.
Figure 8: Planet Labs Q1 FY25 Revenue by Vertical (source: Planet Labs)
Planet Labs has 1,031 customers and its customer count has been steadily increasing in recent years. The company's net promoter score is more than 60, indicating a high degree of customer satisfaction with the service.
Figure 9: Planet Labs Customer Base (source: Planet Labs)
Growing adoption of multiple products supports growth and should reduce churn and improve margins. It is also supporting growth of larger customers, who tend to be concentrated in government and defense.
Figure 10: Multi-Product Customer Growth (source: Planet Labs)
Figure 11: Planet Labs Large Customers (source: Planet Labs)
Planet Labs non-GAAP gross margin was 55% in Q1, and the company's adjusted EBITDA margin was approximately -14%. Planet Labs is rapidly approaching positive cash flow from operating activities, with the difference between cash flows and GAAP profits dominated by depreciation and amortization and stock-based compensation expenses. Margins have been improving with scale though due to the operating leverage inherent in Planet Labs' business model. Planet Labs is targeting adjusted EBITDA profitability in the fourth quarter of this year. The company still has around $276 million of cash, cash equivalents and short-term investments and is targeting CapEx of only 5-8% of revenue.
Figure 12: Planet Labs Margins (source: Created by author using data from Planet Labs)
Longer-term, Planet Labs is targeting adjusted EBITDA margins of approximately 25-35%, with much of the improvement coming from higher gross profit margins. This will likely translate to GAAP operating profit margins of 10-20%. While this is feasible, it will be highly dependent on Planet Labs' ability to create sufficient differentiation to maintain reasonable pricing.
Figure 13: Planet Labs Long-Term Target Model (source: Planet Labs)
Conclusion
Planet Labs is one of the better positioned companies in the space, due to its scale and expanding portfolio of solutions (additional sensor data and analytics). There is also potential for upside from civil government, defense and intelligence applications. Planet Labs is targeting durable 20+% annual revenue growth, which, along with its adjusted EBITDA margin goal, would more than justify its current 1.26x revenue multiple.
While Planet Labs is still unprofitable, the company wants to achieve adjusted EBITDA profitability in the fourth quarter, which would remove a source of risk and should help to improve investor sentiment. Planet Labs success will likely be determined by competition, rather than its current valuation or near-term growth prospects though. In terms of imaging, it will likely be difficult for Planet Labs to maintain differentiation. Additional sensor data and analytics could help the company to build a competitive advantage though.
