Our Planet Labs Price Target After Big Boost Turns Heads on Wall Street

Planet Labs

As regular readers well know by now, I had to take off last Thursday and most of Friday on short notice. Obviously, I did not get to cover the release of Planet Labs' (PL) fiscal fourth quarter financial results, which as a position has turned out to be yet another great victory for the "Stocks Under $10" portfolio/column.

For the three-month period ended January 31, Planet Labs posted an adjusted EPS of $0.00 (GAAP EPS: -$0.48) on revenue of $86.822 million. The top-line and adjusted bottom-line prints both easily beat Wall Street's expectations, while that revenue number was good enough for year-over-year growth of 41.1%. During the quarter reported, remaining performance obligations (RPO) ended at $852 million (+106%), while the firm's order backlog ended at $900 million (+79%).

Operations

As revenue generation ramped 41.1% to $86.822 million, the cost of that revenue popped 70.5% to $39.792 million. This left a gross profit of $47.03 million (+23.1%) as gross margin dropped from 62.08% to 54.17%.

GAAP operating expenses increased 44.2% to $83.032 million, dropping the firm's GAAP operating income/loss from -$19.366 million to -$36.002 million. Once accounting mostly for stock-based compensation and litigation costs, the firm's adjusted operating income/loss dropped from -$6.027 million to -$6.964 million.

After accounting for interest, other income and expenses, taxes and changes in fair value of investment vehicles, GAAP net income/loss amounted to -$152.455 million, down from -$35.154 million. This works out to a GAAP EPS of -$0.48, down from the year ago comparison of -$0.12. After adjustments, EPS landed at $0.00, up from the year ago comp of -$0.02.

Guidance

For the current quarter, the firm projects revenue to be in a range spanning from roughly $87 million to $91 million. Adjusted gross margin is seen in between 49% to 51%. Adjusted EBITDA is expected to be in the range of -$6 million to -$3 million for the quarter.

For the full fiscal year just started, the firm sees revenue in the range of $415 million to $440 million, taking the midpoint above the $428 million that Wall Street was looking for. Adjusted gross margin is expected to land in between 50% to 52%. Adjusted EBITDA is expected to print between $0 and $10 million, which is a big reason behind the upward move in the share price.

Fundamentals

For the full year completed, Planet Labs generated operating cash flow of $134.362 million. Out of that number came traditional capex spending of $76.714 million and $4.783 million in spending on capitalized internal-use software. This produced free cash flow of $52.865 million, up from -$63.993 million for the year prior.

Turning to the balance sheet, Planet Labs ended the period with a cash position of $640.732 million and current assets of $775.362 million. Current liabilities add up to $469.455 million. This includes no short-term debt, but deferred revenue (not a true financial obligation) of $220.572 million. This leaves the firm's headline current ratio at a healthy 1.65. Once adjusted for deferred revenue, this ratio rises to a more muscular looking 3.12.

Total assets amount to $1.146 billion, which includes goodwill and other intangibles totaling $170.085 million. At less than 15% of total assets, this is not an issue for me. Total liabilities less equity comes to $957.255 million, including $446.884 million in convertible notes. While the firm has enough cash on hand to cover this debt, it must be respected that these notes could eventually dilute the equity.

Wall Street

Last Friday, Gregory Pendy of Clear Street, Michael Latimore of Northland, Dan Ives of Wedbush, Jeff Van Rhee of Craig-Hallum, Colin Canfield and Ryan Koontz of Needham — all of whom are rated at either four or five stars (out of five) by TipRanks — reiterated "buy" or "buy-equivalent" ratings on PL, while taking their average target price from $29.67 to $37.17.

Opinion

What's not to like, except for those litigation expenses? The firm expects to be EBITDA profitable this year. The firm is already free cash flow positive. The balance sheet is strong. The order book is loaded. No wonder this stock has been so good for the long crowd this year.

Well, the shares got the boost on Friday, breaking out past the pivot that I gave readers on March 9.

Of course, there is the new, unfilled gap to keep an eye on, but the stock appears to be well on its way to our target price. The indicators are in excellent condition. Relative strength is scraping up against technically overbought levels. The daily MACD is postured very bullishly, with all three components now above zero and the 12-day EMA above the 26-day EMA and rising.

Planet Labs (PL)

Target Price: $40 (reiteration)

Pivot: $28

Add: Down to 50-day SMA (currently $25)

Panic: Loss of 200-day SMA (currently $14)

At the time of publication, Guilfoyle had no positions in any securities mentioned.