Perhaps you’ve heard the old story about how JFK’s father, Joe Kennedy, decided to get out of the stock market when the shoeshine boy started giving him stocks tips. It seems like every market crash has been preceded by a period of mania where investors have been replaced by speculators who will buy just about anything. Pundits encourage this behavior which makes people believe that speculation is the norm. Look no further than this gem from Yahoo Finance:
The way you manage risk in meme stocks is by not dabbling in that garbage. It’s nothing but pure speculation. People talk nonstop about evil billionaires, yet they can’t get in line fast enough to hand hedge fund managers their life savings.
Along with meme stocks, ICOs, and NFTs, special purpose acquisition companies SPACs are another way retail investors are being fleeced. We’ve now looked at over 50 SPACs, all of which can be found in our tech stock catalog. Of those, we’re only holding two (soon to be one). That’s because we’re risk averse tech investors who believe that one of these days the music is going to stop. Still, we do occasionally get tempted. One such temptation is the recently announced merger between Planet and dMY Technology Group, Inc. IV (DMYQ).
About Planet Stock
If you’re not up to speed on what Planet does, check out our piece on how Planet Uses Satellites and AI for Geospatial Intelligence. Simply put, Planet takes pictures of the planet and sells them to people, something referred to as “geospatial intelligence.” After raising nearly $374 million in funding, the company has decided to go public. The planned IPO will raise about $545 million for Planet, enough to cover the $500 million in debt on their books. The resulting glossy SPAC deck is the first we’ve seen to provide historical revenue information which demonstrates strong consistent growth.
Of course that 27% compound annual growth rate (CAGR) suddenly jumps to 44% when Planet forecasts future revenues. They also do the old “my made up numbers are better than everyone else’s made up numbers” slide which is absolutely useless.
Planet is a Data Company
Planet refers to themselves as a data company that happens to have 200 satellites in operation. One fleet of over 150 satellites images the entire Earth’s landmass every day at three to four meter (about three to four yards) resolution. Another 21 higher resolution satellites can image any particular place at 50 centimeter resolution (about 20 inches). With the largest Earth observation fleet of imaging satellites, Planet images the entire land mass of the Earth every day which is appended to a data set that’s 10X larger than all their competitors combined. Machine learning algorithms are then used to identify objects such as roads, buildings, planes, ships, trees, etc. The end result is a searchable database that’s used for any number of use cases.
Some Use Cases
Here are a few examples of how Planet’s data is being used :
- Google uses the data to fill in gaps in their Google Maps product
- Corteva monitors over 800,000 fields for farmers
- Humboldt County monitor uses it to make sure marijuana growers achieve compliance.
- New Mexico State uses it to enforce regulations across 9 million acres
- Norway uses it to track deforestation across the globe
Over 600 customers use Planet’s platform which produces revenue from a variety of segments – 24% from civil government, 23% from agriculture customers, 22% from defense and intelligence, 17% from mapping, and the remaining 14% from a variety of different vertical markets. Around 90% of Planet’s revenues are recurring and 70% represent multi-year contracts. A retention rate of 110% means they’re successfully upselling existing customers over time.
A Huge TAM
With 10 years of data history, Planet has a clear competitive advantage over any new entrants to the geospatial intelligence market. Because they’re an undisputed leader, there’s a huge blue ocean total addressable market (TAM) waiting to be captured. Planet estimates “satellite data services” to be a $19 billion market with an additional $16 billion to be captured in “sustainability transformation,” in other words ESG type stuff. They also add on another $40 billion TAM for “digital transformation” which gives them a total of $75 billion that can be captured.
While those may seem like some aggressive numbers, even a TAM that’s a third of what’s seen above gives Planet plenty of room to run.
To Buy or Not to Buy
We recently about how SPACs are showing signs of wear with some mergers showing the possibility of falling through. Don’t even consider buying a SPAC until the merger is complete. Since the Planet merger is expected to finalize in the fourth quarter of this year, we’ll set a reminder to check in with the company once that happens. If you’re someone who can’t get enough risk and you decide to buy anyway, you’re not purchasing something that would be considered overvalued, at least according to our simple valuation ratio. Here’s that calculation for Planet using their fiscal 2021 revenues and implied market cap of $2.7 billion.
- 2.7 / .113 = 24
We consider anything above 40 to be too highly valued to consider purchasing, regardless of how great the story is.
Earlier this year we published a piece on Investing in Geospatial Intelligence Stocks in which we looked at a number of other companies dabbling in this space. One of those was Spire Global, a company we purchased shares in. As that deal has yet to complete yet (it still trades under the ticker NSH), and we stand to lose money if the deal doesn’t happen, we’re liquidating our position tomorrow. Now that the market leader has emerged, there’s no sense in holding a runner up.
We do have one concern about Planet which is that they’re set up as a “public benefit corporation” which seems to excuse them from their fiduciary responsibilities. Says the Financial Times:
That’s great the founders want to pursue some altruistic mission, but they should do it with their own money. We invest in companies with the single goal of generating profits which we’ll then use to donate to the charities we feel are worthy of our hard earned capital. This whole “shareholders are not longer our priority” rubbish we’re starting to see is a major concern which we’d put in the same camp as the destruction of shareholder value that D&I initiatives often lead to.
Lastly, another geospatial intelligence company, Satellogic, announced a merger with a SPAC this week, something that’s pointless to cover. When you have an established leader in a particular space, that’s where you place your bets. Satellogic has been in operation for eleven years and this year they’re expected to show their first revenues – an estimated $7 million. We only assume these are their first revenues because they show 2020 revenues at zero without providing any additional information.
There aren’t many good pure-play space stocks out there, so Planet is on our radar as a possible addition to our portfolio. Once the deal is done and dusted, we’ll consider opening a position and accumulating shares over time. Of all the SPACs we’ve seen so far, Planet is one of the best – a quality business that’s established a leadership position in a blue ocean TAM with lots of room for future growth.
Should the merger proceed as planned, the ticker will change from DMYQ to PL.
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