For nearly a decade after its formation in December 2006, the United Launch Alliance (ULA) joint venture between Boeing (BA 1.05%) and Lockheed Martin (LMT +0.18%) was the de facto dominant space-launch company in the U.S.
Then came SpaceX, successfully launching a Falcon 1 rocket to orbit in 2008, launching a bigger Falcon 9 rocket in 2010, and then landing Falcon 9 rockets with regularity starting in 2015. Ever since, the balance of power between ULA and SpaceX has shifted to the point that SpaceX is getting really close to its target of launching 100 times this year, while ULA has launched only three times.
And yet, did you know there's a third space company in this space race -- one launching three times as fast as ULA in 2023?
Its name is Rocket Lab (RKLB +4.82%).
NASDAQ: RKLB
Key Data Points
Rocket Lab returns to space
Rocket Lab had a bumpy year in 2023, punctuated by one of its Electron rockets blowing up in September, causing a three-month delay in launch operations while the company figured out what went wrong. And yet, Rocket Lab is back in the saddle, launching its tenth and final rocket of the year on Dec. 15 and setting a new record for launch cadence despite the September setback.
(Rocket Lab's previous record was nine launches in a year, set in 2022.)
With 10 launches under its belt to ULA's three, this makes Rocket Lab the second most prolific launcher of rockets in the U.S. and Europe. (Over in Europe, local launch company Arianespace also sent up only three rockets this year.)
Thus, while Rocket Lab has a long way to go to catch up to SpaceX, it's got momentum. In fact, with Arianespace in Europe targeting at most nine or ten launches in 2024, and Rocket Lab still accelerating, chances are that Rocket Lab will remain the No. 2 launch company -- and so long as SpaceX remains private, the No. 1 publicly traded space stock -- across two continents for the foreseeable future.
And yet, if you ask me, that's actually not a good reason to buy Rocket Lab stock -- or at least, not the best reason.
Rocket Lab is more than just rockets
Why do I say that? Well, just look at the numbers. According to data from S&P Global Market Intelligence, rocket launch is actually Rocket Lab's least profitable business. The company's launch-services division earned only a 16% gross-profit margin through the first three quarters of this year (and was unprofitable last year). In contrast, the company's faster-growing space-systems division has earned better than 21% gross-profit margins this year and has been profitable every year since it opened in 2020.
Space systems -- which includes everything from satellites to interplanetary probes to in-orbit services -- is also growing rapidly. From a mere $2.1 million in revenue booked in 2020, space systems grew to more than $150 million in revenue last year. In contrast, launch services grew from $33.1 million in 2020 to just $60.7 million last year -- good growth but less than a "double" and much slower than space systems.
And space systems is going to get a whole lot bigger pretty soon.
Up, up and away
How do we know this? Well, just last week, in a filing with the Securities and Exchange Commission (SEC), Rocket Lab revealed that an unidentified U.S. government customer placed an order for Rocket Lab to build and operate 18 "space vehicles" (i.e., satellites) for it. These satellites will launch by 2027 and operate through at least 2030. For this work, Rocket Lab will be paid $489 million. The company may receive an extension of this contract, too, operating the satellites through 2033 for an additional $26 million.
Thus, the total potential value of the contract rises to $515 million. And spread across 18 satellites, that works out to $28.6 million apiece, or nearly four times more revenue to build, launch, and operate each satellite than Rocket Lab gets for a single rocket launch.
The company may be named "Rocket" Lab. But better sales growth plus better profit margins on those sales means space systems is actually this growth stock's most important business -- not rocket launch. And so the best news that Rocket Lab investors got this year isn't that it's resumed launching rockets.
It's that Rocket Lab's space-systems business is really starting to blast off.
