In the world of commercial space launch companies, SpaceX reigns supreme. However, Rocket Lab USA (RKLB +7.13%) is making strides and carving out a spot of its own. In the first quarter, Rocket Lab successfully completed four launches and saw its revenue blast 69% higher.
Rocket Lab has been awarded some pretty significant government contracts, and more could be on the way. However, the stock is down 78% from its all-time high price of $21. As revenue ramps up, is now the time to buy some shares?
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The second-largest space launch company in the U.S.
Rocket Lab provides launch services for customers looking to put satellites into orbit. The company focuses on frequent, cost-effective trips through its Electron launch vehicle. Since 2017, Rocket Lab has carried out 42 missions, sending 180 spacecraft into orbit for government and commercial customers.
Commercial space launch companies have significantly reduced the time and cost to launch payloads into orbit. Companies like SpaceX and Rocket Lab have developed technology that drastically reduces costs and serves various sectors like telecommunications, meteorology, navigation, and Earth observation.
Last year, Rocket Lab's Electron vehicle was the second-most-used orbital rocket in the U.S., behind only SpaceX. Rocket Labs made 10 launches during the year, with another four launches coming in the first quarter of this year. In 2023, the company brought in $72 million in revenue from its launch services and $8 million in gross profit.
However, that's not even its biggest business. In addition to its launch services, Rocket Lab makes a significant chunk of its gross profit from space systems, providing spacecraft components, design services, and on-orbit operations that can streamline its customers' path to orbit. Last year, its space systems segment raked in $173 million in revenue and $43 million in gross profit, which has grown 234% since 2021.
NASDAQ: RKLB
Key Data Points
It's been awarded significant government contracts
Government contracts are a crucial part of Rocket Lab's business. Late last year, the U.S. Space Force hired Rocket Lab to design, build, and operate 18 satellites for $515 million. Of this amount, $509 million is for building and getting the satellites ready for launch by 2027.
The company was awarded additional contracts this year. One was for $32 million from the U.S. Space Force for a "tactically responsive space" mission. In this mission, the company will design and build a spacecraft and then launch it on its Electron vehicle with just 24 hours notice.
These government contracts are a massive win for Rocket Lab. They will provide the company with revenue over the next several years, which can help with its ongoing research and development. They also provide the company with credibility and allow it to prove itself, giving it the potential to earn larger contracts down the road.
Keep an eye on its financials
One thing to remember is that Rocket Lab is still a money-losing operation for now. Last year, the company's net loss totaled $182 million based on generally accepted accounting principles (GAAP); in the first quarter, it was $48 million.
RKLB Revenue (TTM) data by YCharts
This is expected as the company invests heavily in research and development. Its Neutron launch vehicle, which it has been working on since 2021, will increase its payload capacity to 15,000 kilograms and will be tailored for larger civil and defense payloads, which should boost its gross margin.
CFO Adam Spice said the company anticipates spending $250 million to $300 million on the development of Neutron, which it projects to launch no earlier than mid-2025.
Rocket Lab: Buy, sell, or hold?
Rocket Lab is still early in its growth story and has a ways to go before becoming profitable. The company aims to reuse rockets in the future, which would allow for more sustainable and financially viable space exploration and help boost its margins.
In the meantime, Rocket Lab will continue to burn cash. The company does have around $500 million in cash and short-term investments, giving it a runway to invest further. However, many analysts don't see it becoming cash-flow-positive until 2026, assuming it begins regular launches of its Neutron rocket.
If you decide to buy or hold Rocket Lab, you are betting its business can take off. However, delays in the launch of its Neutron vehicle could push back its positive cash-flow projections, and timelines are extremely important when investing in higher-risk growth stocks. For that reason, most investors will likely want to avoid the stock.
However, if you are bullish on the space sector and wish to build a position, starting a small position and building it up over time as the company hits key milestones would be a prudent approach.
