Don't Be Fooled. Planet Labs' $230 Million Contract Really Is Great News.

Planet Labs (NYSE: PL) stock is on a roll.

Over the past three months, shares of Planet, which operates the world's largest privately owned constellation of Earth observation satellites, have roughly tripled in value -- from $2 and change back at the beginning of November to more than $6 a share at Friday's close.

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And what's been driving Planet Labs stock higher? Press releases, for the most part. Over the last three months, Planet has announced:

• Expanded contracts with France's Abelio, Colombia's National Police, and with Global Fishing Watch (in a deal worth "six figures").
• A new "multi-year, seven-figure deal" with environmental intelligence company Laconic.
• And a "multi-year contract" with the European Space Agency as well.

Granted, all of these contracts are exceedingly vague on how much actual revenue they will produce for Planet. This probably means the amounts are not material to the company's business (at least not individually). The Laconic contract, for example, at "seven figures" over several years, probably produces less than $1 million a year in additional revenue for Planet -- less than half a percent difference given Planet already generates $235 million in annual revenue.

Up until last week, the most significant news Planet had to report was its fiscal Q3 2025 earnings. Those came out in December, and showed Planet losing $0.07 per share, and collecting less revenue than analysts had expected.

But then came the biggest news of all.

Image source: Getty Images.

Planet's biggest contract ever

On Wednesday last week, Planet announced a contract worth $230 million. In partnership with an existing "Asia-Pacific commercial partner," whose identity Planet did not reveal, Planet will complete work on its fleet of 32 new Pelican high-definition Earth imaging satellites, intended to replace the small fleet of SkySat satellites it acquired from Alphabet back in 2017.

Planet will then proceed to launch these satellites (it has one up in orbit already, but 31 more to go). In exchange for helping to finance their construction and launch, Planet's partner will receive priority access to the satellites, and will continue its payments over "approximately seven years."

What this means for Planet

Investors don't seem to know quite what to make of this news.

On the day Planet announced the deal, shares of the space company's stock first skyrocketed, rising as much as 14% in a matter of minutes. By close of trading Wednesday, though, Planet had given back almost all those gains. Shares of Planet stock then inexplicably reversed again on Thursday, rising about 5%, and then gained another 5% on Friday.

Planet stock ended the week up 12%, but it sure took the scenic route getting there!

Luckily, I think investors have ended up making the right call. Planet Labs' news is good for at least two reasons -- maybe three. First and most obviously, $230 million spread over seven years works out to approximately a $33 million increase in Planet's annual revenue, a 14% increase that almost certainly justifies the stock "going up" 12% last week.

Management stated that the new contract won't affect its fiscal 2025 numbers when it reports Q4 2025 earnings in March. However, adding $33 million in new annual revenue to the $221 million Planet collected last year all but guarantees that Planet Labs will exceed analyst forecasts both this year and next. According to data from S&P Global Market Intelligence, analysts only expect $245 million in fiscal 2026 revenue, and $275 million in fiscal 2027.

And I see even farther-reaching implications from Planet Labs' new contract, beyond just "beating earnings."

Consider: Planet Labs already wanted to build these Pelican satellites. Looked at one way, its customer's offer to help finance the satellites' construction is just helping Planet accomplish its goal. But looked at another way, Planet has identified a service that a customer wants provided, and offered to build satellites to fulfill that need.

Seems to me, this could be the beginning of a new revenue stream for Planet, as it purpose-builds satellites for customers, and either sells those satellites outright (which is one revenue stream) or -- as is happening here -- sells services from those satellites to the original customer, and then continues to use the same satellites to sell even more services to other customers (which is a second revenue stream).

After all, Planet already possesses a state-of-the-art satellite factory in San Francisco, where it builds satellites for itself. There's no reason why Planet can't use this factory to build satellites on contract as well. Indeed, Planet did just that back in 2022, when it invented a first-of-its-kind "hyperspectral" Tanager satellite to track CO2 and methane emissions for the Carbon Mapper Coalition.

CEO Will Marshall thinks this could be "a very large market opportunity" for Planet. If he's right about that, last week's 12% share price may be only the beginning for this space stock.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.