Rocket Lab Soars Over 30% On Earnings
Taking a Look at Rocket Lab (RKLB)
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Rocket Lab Reports Strong Revenue Growth with Operating Losses
Rocket Lab (RKLB) recently announced their Q3 earnings for 2024. The company showcased solid revenue growth, meeting the high end of its guidance range. However, it continued to post operating losses due to increased investments in research and development (R&D) and infrastructure (we should assume this).
For those that haven’t followed my Rocket Lab reports/stance, or don’t know what they do, please reference my archive.
Q3 2024 Financial Highlights
In Q3 of 2024, Rocket Lab reported:
Revenue: $104.8M, a 55% increase from $67.7M in the same quarter last year, and near the top of its guidance range of $100M to $105M.
GAAP Gross Margin: Improved to 26.7%, up from 22.1% in the prior-year period.
Operating Loss: $51.9M, compared to a loss of $38.9M in Q3 2023.
Net Loss: $51.9M, mirroring the operating loss, emphasizing ongoing cash burn from R&D and infrastructure investments.
Quarterly Achievements & Developments
During the quarter, Rocket Lab maintained strong operational momentum:
Launch Activities: Conducted a total of 12 Electron rocket launches so far this year, a record-breaking pace for the company.
Contracts Secured: Secured $55M in new launch service agreements, demonstrating robust market demand and replenishing its launch revenue pipeline.
Neutron Medium-Lift Vehicle: Made substantial progress on the Neutron project, including extensive testing of the Archimedes engines and completing key infrastructure projects like the assembly, integration, and test facility in Virginia.
Market Confidence: Continued to secure significant contracts across commercial and governmental sectors, reflecting confidence in its operational reliability and comprehensive solutions.
Looking Ahead
For Q4, Rocket Lab's management has provided optimistic guidance:
Revenue: Projected between $125M and $135M, indicating continued strong growth.
Adjusted EBITDA Loss: Expected to be between $27M and $29M, suggesting that improving operating margins remains a critical area of focus.
Management continues to emphasize making strategic growth and technological advancements a priority, especially in expanding into medium-lift launches and end-to-end mission solutions. Key areas to monitor include:
Neutron Project Developments: Progress on the Neutron medium-lift vehicle will be pivotal in enhancing service capabilities and capturing a larger market share.
Launch Cadence: Maintaining a high frequency of successful launches to meet market demand and reinforce customer confidence.
Cost Management: Implementing strategies to control rising costs, aiming to narrow net loss margins in upcoming quarters.
My Take
Rocket Lab delivered another excellent quarter, highlighted by a massive billion-dollar backlog, growing optimism surrounding the Neutron rocket, and continued expansion in their space systems division. These positive developments have significantly boosted the stock today. However, there is one major concern I have, which I've mentioned many times in the past. Before addressing that, I want to clarify the new bearish arguments being made about the company.
Critics point to RKLB's operating losses despite rapid revenue growth, arguing that the company can't become profitable. If you listen to management, read between the lines, and analyze their reports, you'll notice that these losses are to be expected. The aerospace industry is extremely costly with high barriers to entry, and operating losses persist due to substantial investments in research and development (R&D) and infrastructure. These expenditures are necessary for positioning the company for sustainable future growth in this competitive trillion-dollar industry.
Additionally, bears often compare RKLB unfavorably to Elon Musk's SpaceX, which is an unreasonable argument. RKLB focuses on smaller payloads—a completely different niche—while SpaceX focuses on larger payloads. Yes, RKLB is planning to enter SpaceX's market segment with the Neutron rocket, but skeptics need to understand that this is not a "winner takes all" market. In this emerging industry, consistency, reliability, and flexibility are what truly matter.
That brings me to the concern I mentioned earlier. The biggest factor holding me back from accumulating more shares aggressively right now is the probability of success (POS) of the Neutron rocket. Many bullish investors might not appreciate this point, but much of the current valuation hinges on a successful Neutron rocket. When I say success, I'm referring to the reliability of the rocket. The likelihood of Neutron being successful on the first try isn't very high at the moment, which I expect and believe the market does too. However, what the market doesn't expect are multiple delays or failures of the Neutron program. This would be a thesis breaker since the road to profitability is largely dependent on a successful and reliable Neutron.
It's possible that RKLB could achieve profitability through their space systems and an expanded Electron program, but it would make the path extremely difficult and would likely result in more shareholder dilution along the way. Therefore, Neutron is a significant concern for me, and I'm going to wait to add to my position until I have more confidence in this project. Some might say that it will be too late by then, and that's okay. I'm well-positioned with my current investment, so if the Neutron project succeeds, I will be handsomely rewarded. In the interim, I will remain grounded and hold firm. RKLB has moved from being outside my top 15 positions to now being in the top 10.