The Make-or-Break Year for Rocket Lab?
Taking a Look at Rocket Lab (RKLB).
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Don’t Get Too Excited
In my previous articles on Rocket Lab (RKLB), I’ve emphasized how investors should be optimistic but with reasonable/realistic expectations, since the entire thesis is built around our up-and-coming neutron launch. With that, I’ve also highlighted the company's robust execution trajectory, evidenced by achievements such as the fully booked launches for 2024, progress on the HASTE program, and numerous other milestones.
The forthcoming year is pivotal for RKLB, with expectations set high due to its proven record of customer adoption and continuous execution. The spotlight is particularly on the performance of the Neutron rocket. Its success could significantly influence market confidence, potentially boosting share prices as earnings potential is re-evaluated. The optimism surrounding the upcoming Neutron launch is understandable, yet it's crucial to temper expectations with a dose of realism regarding the success probabilities. Approaching the launch with the mindset that the initial attempt might face setbacks, followed by a swift recovery and a successful subsequent launch, seems prudent. Many investors might not fully appreciate that without the success and subsequent offerings of Neutron, the company faces a challenging path to profitability. The high costs associated with being a satellite launch provider make successful launches not just milestones but necessities for financial viability.
That said, RKLB has showcased its operational prowess, notably through the successful return of Varda's space capsule, which carried pharmaceutical crystals back to Earth. This mission, spanning roughly eight months, was aimed at enhancing pharmaceutical development in microgravity. RKLB's role was crucial, constructing a bespoke spacecraft for Varda, executing in-space operations, and ensuring the capsule's safe re-entry. This accomplishment not only demonstrates the company’s executional competence but also solidifies customer trust. Furthermore, RKLB’s knack for clinching new contracts, including three additional missions for Varda and a recent agreement with the Space Force, signifies the robust demand for its services. When long-term investors take a moment to consider the broader scope of RKLB’s endeavors, venturing into previously uncharted markets and demonstrating unwavering execution across the board, it's a narrative that should bolster confidence among bulls. This perspective reveals not just a company expanding its reach, but one that's shaping the very landscape of the industry with strategic precision and innovative foresight.
To the company’s financial strategy, which included a $355M capital raise through convertible debt, actually gives them strategic positioning. This move, bolstering their cash reserves to nearly $550M, could support its readiness for a couple years ahead. The company's acquisition strategy post-IPO, capturing three companies within six months, highlights its commitment to providing comprehensive space services as well.
Although Rocket Lab has yet to turn a profit, its impressive industry performance and strategic achievements warrant a cautiously optimistic valuation, in my view. However, it's crucial to address the elephant in the room: Neutron. This pivotal project encapsulates both the promise and the challenges facing the company, making it a focal point for understanding Rocket Lab's future trajectory. The performance of the Neutron rocket represents a significant risk; its success is crucial for future valuation adjustments. If they can’t get this offering fully operational from continuous setbacks, I think the thesis on this company would be scrapped. Nonetheless, the company’s consistent execution, contract achievements, and strategic financial planning position it strongly for 2024. Despite the potential risks, I’ve decided to nibble on a couple more shares.