Recent developments indicate that Planet Labs’ (PL) alliance with Alphabet’s (GOOG) Google on the development of space-based data centers could become quite successful and lucrative for Planet Labs in the long-term. Meanwhile, PL, which provides geospatial data from satellites, is growing very rapidly, and governments appear to be quite enamored with its offerings. Finally, after the company’s shares fell significantly in recent weeks, its valuation is not as steep as it was on April 10 when I wrote my last column about the firm.
Given all of these points, in contrast with my cautious view of PL stock in April, I now believe that long-term, risk-tolerant investors should consider buying the company’s shares.
New Developments Involving PL’s Partnership With GOOG
As I noted in my previous column, “In November, the firm disclosed that it would participate in Alphabet’s Project Suncatcher, which involves placing the tech giant’s AI chips in space.”
Google seems to be quickly and significantly advancing Project Suncatcher. In May, The Wall Street Journal reported that the company was negotiating with Elon Musk’s SpaceX (SPCX) about placing data centers in space. And GOOG is also holding talks with additional satellite-launch firms.
Also encouragingly, on PL’s first-quarter earnings call that was held on June 4, PL CEO Will Marshall sounded very bullish on the technical feasibility of space-based data centers.
“It’s very clear to me that this (space-based data centers are) going to make sense fiscally and from an engineering standpoint. Within 10 years, (they) will definitely be cheaper to (build) in space than on the ground,” the CEO stated.
Marshall indicated that the latter milestone could be reached significantly prior to a decade from now.
Google and Musk, which both have tremendous resources, are apparently working hard to develop space-based data centers. Meanwhile, Marshall, along with other sources, are saying that such data centers can realistically be developed and will be much cheaper than their land-based counterparts. As a result, PL looks well-positioned to generate large amounts of revenue from its deal with GOOG over the long term.
Governments Are Impressed by PL’s Offerings
In Q1, the company’s defense and intelligence revenue soared more than 65% versus the same period a year earlier. Marshall noted that the firm had signed a deal worth at least $10,000,000 to provide “an international defense and intelligence customer” with satellite data and analysis. Further, it obtained a $21.9 million, one year contract from the U.S. National Geospatial-Intelligence Agency to conduct maritime surveillance, along with a six-month, $7.5 million contract from the U.S. Navy to help keep track of ships and “key areas” in the Pacific.
PL’s Valuation Has Become More Reasonable
When I wrote my previous article on the firm, PL stock was changing hands at a huge price-sales ratio of 35.9 times. Now, after the shares slid considerably since April 10, their price-sales ratio is down to a more reasonable 27.35 times. And based on analysts’ average sales estimate for next year of $571 million, its forward price-sales ratio is 18 times.
That’s still a very high valuation. But with the firm approaching profitability (analysts on average expect its earnings per share to be break even next year) and its huge opportunity with Google, the name nonetheless looks appealing for long-term, risk-tolerant investors.
*This article is intended to be informational only; it is not financial advice.
