Why Planet Labs Popped 14%, Then Dropped Today

Space company Planet Labs (NYSE: PL) soared in early trading Wednesday, rising more than 14% before plunging back to Earth. As of 11 a.m. ET, Planet Labs stock is actually down 3.7%.

But why is this space stock giving up any gains at all? Didn't Planet Labs just announce some incredibly good news today -- a $230 million contract for use of its new Pelican satellites to provide high-resolution satellite imagery?

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Planet Labs' shiny new contract

It did. This morning, Planet Labs said it has signed a "multi-year $230 million agreement to expand its partnership with a long-standing, Asia-Pacific commercial partner [to] build and deliver a constellation of new Pelican high resolution satellites, securing certain capacity on the satellites for the partner." CEO Will Marshall noted that this is Planet's largest-ever contract.

While details aren't 100% clear, it appears that Planet's as-yet-unidentified customer is sort of pre-buying services from Planet, first helping to finance the cost of building and launching the satellites so that it can later use their services, and then continuing to pay for services once the Pelicans are operational.

Planet intends to build 32 Pelicans in total, but noted it lacked the money to pay for all of them -- until signing this deal. Payments will be paid in a sort of milestone format, spread over seven years, basically adding $33 million in annual revenue to Planet's revenue stream.

Does this contract make Planet Labs stock a sell?

Planet noted that this deal doesn't impact its fiscal 2025 (last year's guidance), but will "meaningfully" grow cash flow in fiscal 2026 (this year), and will begin to strengthen its balance sheet in fiscal 2027 (next year).

The lack of an immediate bump in Planet's earnings may be what's spooking investors as they look into the details this morning. But I think they're making a mistake -- $33 million extra per year is a significant bump in sales for Planet, which did only $236 million in business over the past 12 months.

This is great news for Planet.

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