Rocket Lab Surges 30% Last Week
Rocket Lab Surges 30% Last Week
Taking a Look at Rocket Lab (RKLB).
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Rocket Lab's Role in the Space Industry
Rocket Lab (RKLB) went public in 2021, and although its stock price soared to $21 per share at one point, it has since fallen by over 45%, currently trading around $8-$10 per share. Recently, the stock has seen a substantial surge of nearly 30% in just one week, fueled by increased interest and buying activity from retail investors. For those bullish on the space economy like me, I think RKLB presents an intriguing opportunity, but there are important factors to consider right now.
The company specializes in developing and operating orbital rockets, offering launch services for clients aiming to deploy satellites into orbit. Its primary vehicle, the Electron rocket, is designed for frequent and cost-effective missions. Since 2017, Electron has completed just over 40 launches for both government and commercial customers.
In the United States, Electron was the second most-utilized orbital rocket last year, trailing only SpaceX's Falcon series. RKLB achieved nine successful launches, while SpaceX completed 98, accounting for approximately 90% of all U.S. launches.
A significant difference between Rocket Lab and SpaceX is payload capacity. The Electron can carry up to 250 kilograms, whereas SpaceX's Falcon rockets can transport payloads ten times heavier. To address this gap, Rocket Lab is developing the Neutron rocket (very important to the thesis), which aims to increase its payload capacity to 15,000 kilograms. This advancement is expected to attract larger civil and defense contracts, improve gross margins, and move the company closer to positive free cash flow.
Initially expected to launch its first Neutron rocket this year, Rocket Lab has postponed the debut to mid-2025 at the earliest. This move wasn’t good news, because the company is burning cash and the entire thesis for the company revolves around this Neutron rocket. Chief Financial Officer Adam Spice estimates that developing Neutron will cost between $250M and $300M.
Financial Outlook and Government Contracts
Government contracts play a crucial role in RKLB's revenue stream. In late 2022, the U.S. Space Force awarded the company a $515M contract to design, build, and operate 18 satellites. This year, RKLB secured an additional $32M contract for a "tactically responsive space" mission, which involves designing and launching a spacecraft on short notice.
These contracts provide steady revenue over the coming years and enhance RKLB’s credibility in the industry, potentially leading to more significant contracts in the future.
However, the company is not yet profitable. Over the past 12 months, Rocket Lab generated $327M in revenue but reported a net loss of $177M. Analysts predict that the company may not achieve positive cash flow until 2026, assuming successful and regular launches of the Neutron rocket. Until then, the company is expected to continue utilizing its cash reserves, which currently stand at approximately $500M in cash and short-term investments.
My Take
I've been holding RKLB since early 2022 and have averaged down my position over the years, bringing my cost basis to just over $4 per share. It's been a very bumpy ride for RKLB investors, but I believe this is an ultra-long-term investment that deserves our patience. The space economy is often touted as a massive $1T addressable market, and RKLB is aiming to secure its piece of the pie. However, the size of that piece depends on their continued execution.
Moreover, we need to remain reasonable and grounded despite the recent surge in stock price. It's important to realize that this company is not profitable and if Neutron can't come to fruition or is unsuccessful, it could be a thesis breaker. Personally, I plan on holding onto my shares, but I'm not sure I'll be able to weather the storm if we face another delay on Neutron.