Rocket Lab Keeps Winning
Rocket Lab Keeps Winning
Taking a Look at Rocket Lab (RKLB).
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Big Wins for Rocket Lab
Earlier this month, and this past week, Rocket (RKLB) achieved significant milestones by securing nearly $50M in U.S. CHIPS Act and other government subsidies and announcing their largest satellite contract ever. The success for securing $50M stems from Roc 2021 acquisition of the small solar power company, SolAero Holdings. SolAero's solar cells, designed to generate electric power for spacecraft, qualify as specialty semiconductors, making them eligible for government subsidies. This subsidy effectively recoups $50M of the $80M Rocket Lab spent to purchase SolAero, courtesy of U.S. taxpayers.
However, the most significant news for RKLB this month isn't just about subsidies.
The company also announced its largest satellite launch contract to date, securing a deal to launch five rockets for French Internet of Things (IoT) company Kineis. Each rocket will carry five Kineis satellites, culminating in a 25-satellite constellation—the largest such project RKLB has ever undertaken. The first of these launches, aptly named "No Time Toulouse," begins on June 19. This constellation will enable Kineis to connect "millions" of IoT devices globally and facilitate the automatic identification of ships at sea.
For RKLB, this launch also marks a significant milestone: it will be the company's 50th Electron rocket launch since beginning operations in 2017. As the company proudly shared on X (formerly Twitter) this week, they have scaled to 50 launches faster than any other space company in history.
The Kineis contract brings RKLB substantial recognition, but the company has another key customer that is even more crucial for revenue—BlackSky (BKSY). BlackSky is RKLB's largest rocket contract, with the company having conducted five launches for them already and at least four more planned. At an estimated $7.5M per launch, BlackSky is expected to pay Rocket Lab about $67.5M, compared to the $37.5M from Kineis.
What Does This Mean for Investors?
The company’s launch services, while not the most profitable, are essential for the company's growth. According to S&P Global Market Intelligence, RKLB earns an 11% gross profit margin from launching rockets but achieves twice that margin from its space systems segment, which involves manufacturing satellites and selling satellite parts. Although neither division currently generates operating or net profits, owning its own rockets business facilitates the sale of more profitable satellites.
RKLB is growing its rocket segment faster than SpaceX, making it a significant growth driver for the company. The combined contracts with BlackSky and Kineis alone amount to $105M, about 50% more than the revenue from the launch services segment last year. Including other clients, RKLB is on track to conduct at least 16 launches this year, potentially generating $120M in revenue from this division—doubling its launch revenue over the past two years.
While the company is not yet profitable, its rapid revenue growth suggests profitability is on the horizon. And like I’ve said multiple times in the past, everything hinges on Neutron which was delayed this year. The best time to buy is before the company achieves profitability and the broader market recognizes this critical milestone. However, there is significant uncertainty regarding whether Neutron will be a success. This is the challenging aspect of investing in potential big winners. Investors must decide if they believe RKLB will succeed with the Neutron launch. The best investment opportunities often arise during times of heavy uncertainty, but it ultimately falls to the investor to make that call. Could RKLB be the next winner?