Nothing screams “I know nothing about investing” more than someone who celebrates short-term stock price movements. Unless you’ve moved to capture alpha by closing your position, you have a paper gain and have achieved nothing. Many the newbie “investor” has watched a stock gain +100% and then ended up selling at a -50% loss. The amount of people who mistakenly believe they’ll day trade their way out of a 9-to-5 has skyrocketed thanks to Twitter and Robinhood.
If you want to see whether a stock price is being manipulated by retail “traders,” just search for it on Twitter. Space stocks and quantum computing stocks are currently being manipulated by a large group of individuals, many of whom will put an icon of a rocket ship (Rocket Lab) or an atom (IonQ) in their Twitter to show their blind allegiance to a stock they spend all their time cheerleading. Platforms like Fintwit promote such behavior by suggesting that your average retail investor with $240 to “invest” has a snowball’s chance in hell of making money as a trader. Pied Pipers who are ranked based on the number of rats who follow them encourage this behavior.
These days, stock price volatility is often a sign of manipulation by a large group of individuals who act in a coordinated manner trading stock using the tea leaves of technical analysis. One such stock is Planet Labs Inc (PL).
Why is Planet Labs Stock Falling?
When Planet’s Q3-2021 earnings were released, PL stock fell -22%. The reason for the drop? Several items of suspicion in the earnings call transcript included “the suspension of a large government contract due to the government takeover by an unsanctioned regime” and a single satellite having some thruster problems. We didn’t see these issues as anything but temporary, so we opened a small position as we’ve always viewed Planet Labs in a very positive light, ever since we began following them when they were a private company. At the same time, we sent an email to their investor relations team as follows:
Looked and looked but couldn’t find your Q3-2021 10-Q SEC filing – saw the 8K. Do you know when you’ll have the 10-Q available? We are particularly interested in customer concentration risks which are usually included in the 10-Q / 10-K.
It’s been two weeks now without a response which is concerning. So, let’s analyze the information we have to work with. Because this is a special purpose acquisition company (SPAC), everything is convoluted, and an entire mess of documentation has been balled up into an 8-K with 31 attachments. We’re going to focus on Exhibit 99.3 which is something that seems to resemble a proper 10-Q.
Planet Labs Q3-2021 Earnings
We recently wrote about why we’re avoiding Maxar Technologies (MAXR) and one reason is because we don’t have much visibility into the imaging side of their business. Contrast that to Planet Labs which operates as an almost pure SaaS play with over 90% of their customers on multiyear contracts with an average contract length of over 2 years. The below table provides some appropriate metrics used to monitor such businesses.
Net Dollar Retention Rate reflects the company’s ability to upsell existing customers. The drop is said to be “primarily due to the lower renewal value of a large government contract and the discontinuation of services to a government customer that ceased to exist beginning in August 2021.” (Afghanistan perhaps?) This talk of large government contracts is precisely why we wanted to see customer concentration risk spelled out in a proper 10-Q. It also demonstrates precisely why we don’t invest in companies that do a large deal of their business with governments.
The next metric – Net Dollar Retention Rate including Winbacks – isn’t a typical SaaS metric. A “winback” refers to “a previously existing customer who was inactive at the start of the fiscal year, but has reactivated during the same fiscal year period.” Planet believes that this provides “a quantification of Planet’s ability to recapture lost business.” Is that because they’re losing so many customers when contracts expire? We don’t know because, like most SaaS companies, they’re not providing a key SaaS metric – gross retention rate.
The last metric in the table, “Capital Expenditures as a Percentage of Revenue,” is an interesting one because of the following statement made by Planet:
Other earth observation companies may spend more than ten times on a single satellite what Planet spends to build and launch a fleet of 180 satellites.
Credit: Planet Labs
You might recall that Maxar Technologies spend upwards of $600 million launching their latest constellation while Planet Labs expects their capital expenditures to be “more similar to software companies with large data center infrastructure costs.” (Planet’s satellites cost low hundreds of thousands of dollars each to build.)
As for revenue growth, Planet Labs expects to hit $130 million in 2021 which would mean growth of about +15% over the year prior. It’s decent but nothing spectacular, especially when you consider quarterly revenues haven’t been growing consistently over the past four quarters. As for last quarter, Planet Labs talks about “a significant new customer contract in Europe which resulted in a $10.5 million increase in revenue for the nine months ended October 31, 2021.” Again, we really need to see some numbers around customer concentration risk. Planet may have 740 customers, but how many are paying them more than $100,000 a year? How many are paying more than $10 million per year?
Cash and Market Cap
In looking at the Planet Labs latest earnings report, we were puzzled as to why cash from the SPAC wasn’t being reflected. To solve that mystery, we can turn to Exhibit 99.2. The first table in the document clarifies that once the business combination financials are properly rolled up, Planet expects to have around $527.78 million on their balance sheet which can help absorb losses and fund growth.
We’ve also seen some confusion around Planet Labs’ market cap which seems to be reflected differently depending on where you look. We calculate that number as $1.62 billion (261,837,864 shares outstanding X $6.18) which is now correctly reflected on Yahoo Finance (our go-to vendor for quick stock data). We can now calculate our simple valuation ratio using the $31.7 million in Q3-2021 revenues.
- Market capitalization / annualized revenues
1,620 / 126.8 = 13
That’s certainly not overvalued, and would be considered reasonably valued when compared to other space companies like Rocket Lab.
The PBC Move
Our readers teach us as much as we teach them, one of whom raised a red flag we should have spotted a long time ago. As early as summer it was known that Planet Labs would form a Public Benefit Corporation (PBC) which is described by Cornell Law Review as merging “the traditional for-profit business corporation model with a non-profit model by allowing social entrepreneurs to consider interests beyond those of maximizing shareholder wealth.” This is a red flag. We invest in companies so they can show a return on our invested capital and we will decide what social causes our money supports.
We have no interest in funding a CEO’s vision of what they deem are social causes. Hopefully, Planet Labs PBC made this move as an appeal to the ESG types and has every intention of solely focusing on maximizing shareholder value.
Hype vs. Substance
How much of the volatility surrounding Planet Labs shares can be attributed to weekday warrior Gordan Gecko types vs. legitimate concerns from institutional investors as to the future of this company which were gleaned from the 31 pages of documents released to the masses? It’s impossible to tell, but seeing tripe like this makes us think that the dramatic share price movements can be attributed mostly to speculators, not investors.
Until Planet Labs has properly consolidated all their financials and filed a normal 10-Q like any other firm, we’re not adding to our position at any price point.
If SPACs are risky, space SPACs are the riskiest of the lot. We’ve covered over 70 SPACs now, and this is the only one we’re holding. Another SPAC merger we’ve been painting in a favorable light is Rocket Lab which actually managed to file a proper 10-Q. (We’re avoiding Rocket Lab right now because they’re overvalued.)
Conclusion
We have largely avoided SPACs because they are risky, and Planet Labs PBC is no exception. Throw into the mix stock manipulators and a company that can’t get its information act together and it’s no surprise that Planet stock is falling like a rock one day and rocketing “to the moon” the next. We’re holding a small position in the stock with no intentions to add until the financials are properly consolidated and a normal SEC filing cadence has been established.
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