Space launch service provider Rocket Lab (RKLB 3.40%) posted its second-quarter results late last week. And once again, they were good. Revenue was up, and gross profit margin is improving. The company expects more of the same kind of progress for the quarter currently underway, too.
In other words, this growth story is panning out just as many investors were expecting.
There's a reason shares didn't jump in response to the good news, though. That is, the market may be waiting on something else that doesn't show up in any of the company's past or projected numbers. Namely, there's a new rocket in development that's expected to make its first flight later this year, pushing Rocket Lab into a whole new segment of the space launch business.
It matters simply because investors love these sorts of milestones. Some investors will even wait on the sidelines for companies to reach them. That, however, may be a mistake.
Image source: Getty Images.
Rocket Lab's mixed Q2
Rocket Lab offers space launch services to companies needing to put relatively small satellites into low Earth orbit. The so-called Electron rocket capable of doing so is relatively small at only 59 feet high. But with a payload capacity of up to 661 pounds, it gets the job done well enough. To date, its reusable Electron rockets have made 69 launches to successfully deploy a total of 233 satellites.
That's where the bulk of last quarter's record-breaking revenue of $144.5 million came from (the company also operates a satellite technology business), up 36% year over year, and handily topping expectations of $135.4 million. While still unprofitable, its gross profits -- revenue generated by its five Electron launches minus the direct cost of those flights -- grew accordingly even though its net loss widened more than expected to $51.9 million. That's the chief reason shares not only didn't fly following last Thursday's release of these results, but are slightly down in the meantime.
A potentially major catalyst for the stock, however, is in the works.
Coming soon: Bigger and better!
Satellites aren't what they used to be. They used to be huge out of necessity. Now they're not. Yet they can do so much more than their predecessors did.
Launching them into space is also much more cost-effective than it's been in the past, particularly in light of newer rockets' reusability; that's certainly been the case for Rocket Lab's reusable Electron. The fact is, however, there's still a huge market for ferrying bigger satellites and deeper-space mission payloads into orbit.
Enter Neutron.
Neutron is Rocket Lab's next-generation rocket, capable of lifting up to 28,000 pounds of payload into space. Or, for fans of the notion that a mission to another planet is now inevitable, Neutron can be configured to put over 3,000 pounds' worth of cargo, materials, supplies, and even people en route to Mars or Venus. This qualifies Neutron as a so-called "medium lift" rocket, which is still very necessary to private sector companies as well as government agencies, including NASA and the U.S. Department of Defense. Indeed, as the need for better satellites goes up while the cost of putting them into orbit goes down, demand for medium-lift launches is actually growing. An outlook from Emergen Research suggests the global medium and heavy-lift launch market is set to grow from last year's $12.5 billion to $29 billion per year by 2033, jibing with a prediction from 360iResearch. While the "heavy lift" portion of this industry remains the most expensive (by far) on a per-launch basis, launches of these massive rockets will also remain relatively rare. It's the medium-lift launches that are set to become the workhorses of the space industry.
Rocket Lab isn't the only competitor within the medium-lift rocket market. Notably, Tesla CEO Elon Musk's SpaceX has been testing a reusable medium-lift launch vehicle of its own -- called Falcon 9 (Block 5 variant) -- that's made a few hundred successful flights since its first one in 2018. Firefly Aerospace (FLY -4.03%) and Northrop Grumman (NOC 0.09%) are also co-developing a medium-lift rocket to replace its older Antares design.
Rocket Lab arguably has a competitive technological edge on its competition in this space, though. For instance, sticking with a formula that's worked for years now, it recently completed its acquisition of Geost, adding advanced electro-optical and infrared payload capabilities to its in-house offerings. These solutions support missile-launch warning tech, tactical surveillance and reconnaissance, and more, equipping the company to meet the Department of Defense's specific military-grade needs.
Better early than late
Great, but what does any of this have to do with Rocket Lab's second-quarter earnings and the stock's non-response to the encouraging report? The market may well be waiting on Neutron to make its first flight to dive in.
It's certainly not difficult to understand investors' hesitation. Neutron was first expected to go up last year. While the delays were largely logistical ones rather than reflective of design problems, it was still unexpected disappointment. Investors don't want to be burned again.
In the grand scheme of this company's history, though, it's never failed to achieve its goals. It's only taken more time than initially expected to achieve them. Also, bear in mind that the longer it works on Neutron, the clearer its timeline becomes. Rocket Lab's most recent guess for a launch sometime before the end of this year is likely to be a pretty good one, with the company confirming the Launch Complex 3, which will handle Neutron launches, will be completed and opened before the end of this quarter.
If you're waiting for this medium-lift rocket's first launch to buy Rocket Lab stock, however, you're arguably waiting too long. The market's going to anticipate this launch as the day approaches, quietly bidding shares up in the meantime. If you truly believe in the company's potential and want to maximize your gains with its stock, the smart-money move is wading in while nobody else seems interested -- like now -- and just accepting that you may see some above-average volatility in the meantime.
This might help: While the next couple of quarters' top or bottom lines won't see any fiscal benefit from Neutron's inaugural launch, that benefit is coming sooner or later, and arguably sooner. The analyst community expects this year's likely revenue of $588 million to more than double by 2027, pushing the company out of the red and into the black by the end of that stretch.
Patience will pay off here. You just won't want to wait to make your entry.
