40, 36, 1.
Space is hard, as the saying goes. Since its very first rocket launch from Launch Complex 1 in New Zealand, small rocket company Rocket Lab USA (RKLB +2.51%) has attempted 40 separate orbital rocket launches, along with one suborbital, hypersonic military mission. Thirty-six of those orbital launches succeeded. The suborbital launch did, too.
Up until last week, Rocket Lab was on quite a winning streak, too. From July 29, 2021, through September 19, 2023 -- more than two straight years -- every single Electron rocket that Rocket Lab launched, flew exactly as planned. That's 20 straight successful launches without a hitch.
But as I say, that was up until last week.
Last week, Rocket Lab reminded us that even for successful rocket companies, accidents can still happen.
NASDAQ: RKLB
Key Data Points
Nothing lasts forever
Launching out of LC 1 once again, at 2:56 a.m. ET last Tuesday, a Rocket Lab Electron rocket, carrying one single Acadia synthetic aperture radar (SAR) satellite for private customer Capella Space, suffered an anomaly two and a half minutes into its flight. The flight was promptly terminated by remote.
The launch director has called an anomaly, resulting in the end of the mission. We'll share more information as it comes to hand.
-- Rocket Lab (@RocketLab) September 19, 2023
Rocket Lab stock promptly plummeted, closing the day down 7.5%, and it's drifted even lower over the past week.
This was to be expected, though. After all, in addition to the spectacular explosion, Rocket Lab stock got rocked a bit by the financial implications of the mishap. The company noted that it will need to revise its third-quarter guidance "in the coming days" to account for both the loss of one rocket, and the likelihood that the company will have to delay a subsequent launch that it had hoped to complete within this current third fiscal quarter.
Get ready for disappointment
So how much will this disaster cost Rocket Lab, and how much should investors expect to be disappointed when earnings come out in November? Well, according to company executives, Rocket Lab charges about $7.5 million per rocket launch. Losing one rocket and delaying a second should therefore cost the company something on the order of $15 million in Q3 revenue, depressing sales from analysts' expected $74.5 million to probably something closer to $60 million.
That sounds bad -- and it is bad -- but it could have been worse.
Quarterly revenue of $60 million is approximately what Rocket Lab did a year ago. So investors can anticipate that sales won't grow 24% year over year, as expected, but they might still be no worse than flat year over year. And assuming Rocket Lab can work out what went wrong with its Electron relatively quickly, and resume launching in Q4, it's likely that it will be able to make up for lost time and simply shift $7.5 million of its "missing" Q3 revenue into Q4.
Also, if Rocket Lab insured its rocket, then not all of the revenue from the rocket that blew up may have been lost, further dulling the blow to Rocket Lab's revenues.
Don't be too disappointed
It's also worth pointing out that as disappointing as Rocket Lab's failure may be, in the grand scheme of things it's perhaps less significant than first appears.
Granted, with "rockets" right there in the name of this space company, you might think that rocket problems with Rocket Lab's pose an existential crisis for the company. But already, even as it depends on Electron rockets to send customer satellites into orbit today, Rocket Lab is working on a next-generation rocket to replace or supplement the disposable Electron: a larger, fully reusable rocket to be known as Neutron, which should enter service next year.
So Rocket Lab probably isn't as dependent upon Electron as you might think.
What's more, with every passing quarter, it's becoming more apparent that Rocket Lab is about a whole lot more than just rockets. Fact is, Rocket Lab's rocket launch business actually provides only about 29% of this company's total revenue. The far more significant 71% of Rocket Lab's money comes from building equipment and spaceships for its customers -- a business that Rocket Lab calls "space systems."
In contrast to Rocket Lab's launch business -- which does not now and never has earned a profit -- space systems has been profitable (on a gross margin basis) from the beginning and produces not insubstantial 17% gross profit margin already today. And while Rocket Lab's launch business grew by a very respectable 56% last year, space systems grew 550%, according to data from S&P Global Market Intelligence.
Long story short, the news about Electron isn't great. It's a disappointment, to be sure -- but it's not a fatal flaw in the stock. Long-term investors can safely look past this setback and focus instead on the elements that are more important to Rocket Lab's future: Neutron, and space systems.
