Continued thinking on Planet Labs
Every investment decision ultimately returns to the question of what do you believe vs. what is already priced in
Over the last few weeks, I trimmed more of my stake in Planet Labs. As of this writing, it is down to ~27% of my portfolio vs. north of 40% earlier this year. It is still my largest position, and I wanted to share a few thoughts.
It’s hard to believe around a year ago it was a $3 stock, just one of the many SPACs left for dead after falling short of lofty projections. The business has markedly improved since then, but the market reaction shows how rapidly repricing occurs with an evolving fundamental outlook. Prices move quickly and violently, which can create opportunity but also risk over a long time horizon.
Every investment decision ultimately returns to the question of what do you believe vs. what is already priced in. That difference of opinion, or argument, is the basis for investment.
For several years, it seemed almost nothing was priced into Planet. The business had hit some headwinds, to be sure, but the core competitive advantage was intact (they were still the only company imaging the entire Earth every day!), and ongoing developments in AI clearly accelerated the path to value creation.
Nevertheless, unique data assets and technological advantages are not necessarily reflected in the immediate financials, and public markets tend to prioritize evidence of growth and profits today. The stock was a loser.
That has all changed recently. Top-line growth has accelerated each of the last four quarters, spurred on by a few landmark sovereign space deals which are all the rage today. Add in a few quarters of positive free cash flow, and voila, Planet went from loser to AI + space winner. The stock is now up more than 10x in the last year.
Today, Planet appears priced for perfection; such aggressive market movements change the forward return equation. I still believe in the fundamental prospects for Planet — the durability of growth and defensibility of margins over time — but, I have less confidence in the caliber of returns moving forward. There is no shortage of great companies who failed to deliver great returns simply due to the starting valuation.
Trimming my stake was the outcome of weighing what I believe against what is priced in. I believe the business can grow north of 20% for a very long time. There will be years it undershoots and years it overshoots, but in aggregate, it can be a 20%+ grower over the long haul. However, that isn’t enough at today’s price.
More concretely, if Planet grows revenue at a 25% CAGR over the next decade (a good outcome by any measure) and earns a 6-10x revenue multiple on calendar 2035 revenue (reasonable for a good business, I suppose), you can expect roughly 2-8% annualized returns from today. That simply doesn’t clear the bar.
I want my future returns to depend on the fundamental progression of the business, not the sustainability of the multiple. And here, I find it hard to argue the multiple is sustainable. Planet has some lofty expectations to live up to.
I invest because I believe markets are inefficient in the short-term and trend towards efficiency over the long run. That inefficiency can just as well mean excessive enthusiasm as excessive pessimism. We saw the latter from 2022 to early 2025, and I fear we are in the middle of the former.
Planet may prove to wildly outperform all expectations, in which case I will be happy, just less wealthy than I would have been if I had never sold any. I’m comfortable with that outcome and prefer to take some more chips off the table.