No two themes attract more retail investor interest than space and cannabis. Who doesn’t like watching science fiction movies and taking bong rips? If that’s not your cup of tea, then there’s the potential for alpha on offer, provided you can stomach all the volatility. Recently, we posed the question, Just How Low Can Space Stocks Go? A lot lower, because like any disruptive technology theme, they’ll move in unison with the broader technology market. With the Nasdaq sitting at nearly all-time lows, a slow slide into 2023 is all but expected.
If the bear market were to reach the lows seen during the pandemic panic of March 2020, the Nasdaq would need to fall 35% from today’s levels. That’s why we decided to only add shares of Planet (PL) if they fall 50% or more below our cost basis. For those of you who like price targets, that would be $3.45 a share. Given the 52-week low is $3.70 a share, it’s realistic to think that a continuing bear market might test those levels. Today, we want to make sure we’d still pull the trigger if shares fall 50% below our cost basis or more.
The Latest Updates from Planet
The latest scuttlebutt comes from Planet’s Q3-2023 results released several weeks ago which also provides guidance for the remainder of 2023. What’s that you say? The year 2023 hasn’t even started? Shush please, and just ignore the fact that Fiscal years are confusing as hell, and whoever invented this should be taken out back and shot. The takeaway is that growth is continuing on an annual basis.
Planet’s glossy SPAC deck promised $191 million for Fiscal 2023, while midpoint of guidance now points to $190 million. That’s indicative of a competent management team that does what they say, and also addresses problems as they arise. For example, Planet provides a metrics called “winbacks” which is defined as “a previously existing customer who was inactive at the start of the fiscal year, but has reactivated during the same fiscal year period.” Having to convince customers to return to a solution they stopped using isn’t a very big vote of confidence for the value proposition. That said, props to the management team for having the cojones to admit there was a retention problem, and actively address it with ongoing metrics. As for the most popular SaaS retention metric, net recurring revenues, that sits at 123% which is about where a typical SaaS firms ought to be.
Today’s macroeconomic headwinds will make the Fiscal 2024 revenue target of $289 million – representing 50% growth year-over-year – a real challenge. Any disappointments will likely cause the share price to react accordingly, which could represent a buying opportunity. The only concern would be whether Planet can survive until they’re able to start generating positive operating cash flow. Like most software-as-a–service (SaaS) business models, their gross margin is expanding as they scale.
With $425 million on the books and a burn rate of around $45 million a quarter, they have several years remaining before more cash will need to be raised through issuing more shares or raising debt. Overall, the company appears to be on track, and they’ve even added some missing metrics that we had asked for the last time we checked in.
Planet’s Leadership Position
We’ve had quite the debate with readers about whether Planet Labs or Maxar (MAXR) would be the leader in geospatial imaging. We’ll be losing visibility into the latter given Maxar will be acquired by private equity firm Advent. The other four companies to watch in the geospatial intelligence space are all SPACs with market caps under $1 billion (company names link to our most recent research piece on each company).
We have a strict rule about not investing in any company with a market cap under $1 billion, but for those with more tolerance for risk, here’s a quick look at how these geospatial intelligence companies have been faring.
Satellogic Stock
During the six months ended June 30, 2022, the Company recognized revenue of $2.34 million primarily from the selling of our imagery to a single customer in an over-time revenue recognition arrangement.
Credit: Satellogic 10-Q
Evaluate companies for long enough and red flags start to become intuitive. Long shareholder updates that amount to nothing tangible, a single customer, and lots of prospects in places like Albania, are the kiss of death for companies playing follow the leader. Satellogic still hasn’t managed to achieve meaningful revenues yet, and until they do, there’s no point in wasting any time analyzing the company’s prospects.
BlackSky Stock
Investors were expecting $114 million in 2022, but BlackSky’s latest guidance points to just $66 million on the upper end of guidance. At least now they’re managing to sell a service for more than it costs to produce. While last year their cost of goods sold (COGS) exceeded revenues, this year they’ve been decreasing COGS while increasing revenues, with 82% of total revenues coming from U.S. federal government and agencies. We don’t invest in companies that have such a heavy reliance on any single government because they have little leverage at the negation table. BlackSky has $88 million remaining on their books and $73 million in debt with a burn rate averaging around $35 million a year.
Spire Stock
Spire investors will be quick to point out that they’re doing something different from Planet. Fine, but they’re still classified under “geospatial intelligence.” The company has about $100 million in cash remaining, while revenue growth is far from what investors were promised – $114 in 2022 according to the glossy SPAC deck. Here’s how that’s going:
Full year revenue guidance remained between $80 to $82 million, after Spire lowered guidance last quarter from original 2022 guidance of between $85 million to $90 million.
Investors should hold management teams accountable for missing their estimates by a country mile. Maybe that’s why the stock price has sunk like a rock. With $82 million left on the books, and $21 million burned through last quarter, Spire has about a year’s worth of runway before they’ll need to raise more money by selling their beaten-down shares or adding to the $100 million in debt on their books.
Should the bear market continue through 2023, then companies like Spire – and even BlackSky – may see their depressed share prices lead to a risk of being demoted to over-the-counter status which would significantly inhibit their ability to raise capital. Proper institutional investors don’t mess around with OTC stocks, and neither should you.
Bits and Bobs
Space is a risky theme, even for investors with more tolerance for risk than we have. More exposure to the theme isn’t a concern given how little we have, but would we add shares of Planet were the company to fall 50% or more below our cost basis?
The company talks about this massive total addressable market of $128 billion which seems very optimistic, but even if the TAM were a 10% of that number, they’ve still barely tapped into the opportunity. They claim to be the leader in geospatial intelligence, something we’ve debated heavily with the Maxar advocates. Perhaps we can agree that both Maxar and Planet are leading the pack with Airbus’s contributions largely an unknown apart from what industry insiders might be able to comment on.
Per our comments on “winbacks,” there’s a concern here about how “sticky” the solution will be in the face of today’s bear market where companies are tightening their purse strings. Does the platform add sufficient value such that customers will continue spending more through Fiscal 2024? We’re optimistic given other key metrics the company provides in their recent investor deck, something we’ve elaborated upon further in a YouTube video to supplement this research piece titled Best Space Stock.
If we choose to add shares of Planet in the coming months, Nanalyze Premium annual subscribers will be alerted via email.
Conclusion
We’re going to hold strictly to our rule of only adding shares if they fall 50% below our cost basis or more. Oftentimes when we set an aggressive target that seems out of reach, the market surprises us by hitting it and falling even further. If the market dumps another 20 or 30 percent in 2023, seems likely the falling tide will affect all ships. If 2023 ushers in a recovery which paves the path to the next bull market, how happy will we be? Either outcome is perfectly acceptable as we already have some exposure to what might be one of the best space stocks out there right now.
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