Is "Space Hippie" Planet Labs a Defense Contractor Now?

If you haven't yet seen Wild Wild Space on HBO, but you're interested in investing in space, I'd encourage you to find a spare 90 minutes and watch it. Seamlessly transitioning from the printed word to streaming TV, space reporter and Elon Musk biographer Ashlee Vance uses his new documentary to look beyond SpaceX -- the space company everyone has heard of but few can invest in -- to explore four lesser-known space companies (one of which just got bought out) with bright futures.

As it turns out, one of those space companies is Planet Labs (NYSE: PL) , which I've been following since even before its IPO.

The best-laid plans of mice and men

Vance describes the Earth-imaging-focused company as having been founded by "space hippies" intent on providing actionable intelligence on changes taking place on Earth to help combat pollution, climate change, and so on. Consistent with that goal, Planet Labs is a "public benefit corporation" -- a for-profit business that, as Cornell Law School explains, is also "created to generate social and public good, and to operate in a responsible and sustainable manner."

Those are admirable goals... but perhaps they may not quite be the best way to earn profits for investors.

Consider that, prior to its IPO, Planet Labs laid out an ambitious plan to do well by doing good . Not only would it help to save the planet, but it would also grow its revenues at an annualized rate of about 44%, earn (non-GAAP) gross profit margins of 74%, and generate positive free cash flow by 2023.

That's not exactly how things worked out.

Over the three years since its IPO, Planet Lab averaged annual revenue growth of closer to 26% -- good, but barely half what was promised. Likewise, gross profit margins are currently a respectable 51% -- not 74%. Free cash flow, meanwhile, remains elusive. According to data from S&P Global Market Intelligence , over the last 12 months, Planet Labs burned $66 million in cash, or $13.5 million more than it burned in 2021.

Turns out, doing good is a bit easier than doing well.

Congratulations, Planet Labs -- you're in the Army now

So what's the solution? Clearly, Planet Labs needs to get its growth engine firing on more cylinders, and scale up faster to improve both profitability and free cash flow. One way it has decided to do this is through signing more military contracts.

Since the start of 2024, Planet Labs has in fact signed at least three "seven-figure" contracts with military customers (two of them in just the past week). These include contracts with:

• The U.S. Naval Information Warfare Center Pacific for vessel detection and monitoring. (That deal was signed earlier this year.)
• An "international ministry of defense customer" to provide that client with PlanetScope data enhanced with artificial intelligence -- also for vessel detection and monitoring.
• A U.S.-allied international government agency, to which Planet Labs will provide high-resolution satellite data using its legacy SkySat satellites, later to be upgraded with next-generation high-resolution Pelican satellites.

How much are defense dollars worth?

Investors were understandably thrilled with the news, and Planet Labs stock rose by more than 30% over the past couple of weeks on reports of the last two contracts. Still, let's not get too exuberant.

Planet Labs describes each of these three contracts as being worth "seven figures," but it's not more specific than that. We don't know whether these are $1 million contracts or $9 million contracts. Nor are we told whether the seven-figure revenues in question are annual revenues, or will be spread over a period of some years.

In other words, while those three contracts could amount to an annual revenue bump of $27 million -- more than 10% of Planet Labs' current annual revenue -- it's also possible that the total effect of these contracts combined would be to grow annual revenues by less than 1%.

Is Planet Labs stock a buy?

Lacking more precise details about these contracts, it's probably best to evaluate Planet Labs stock on the facts that we do know for certain. Specifically, the facts that Planet Labs is unprofitable (it lost $135 million over the past year), is burning cash ($66 million), and -- according to analysts -- likely to remain unprofitable and cash-burning for the foreseeable future. (Most analysts foresee losses through at least 2027.)

Suffice it to say this is probably not what the investors who bought into the Planet Labs IPO three years ago bargained for. If you're looking to invest in a space stock today, I've got three more space stock ideas that probably offer more realistic paths to profits .

Rich Smith has positions in Planet Labs Pbc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .