Rocket Lab (RKLB +0.53%) reported its third-quarter results on Monday evening. As of Wednesday evening, the stock was down 3.7%. Based on just these two facts, you'd probably assume this means that Rocket Lab missed its earnings targets on Monday.
But it didn't.
In fact, according to data from The Fly, Rocket Lab actually beat earnings quite soundly. Sales for the quarter, which analysts predicted would be no more than $152 million, came in above $155 million. And instead of the $0.10 per share that analysts thought Rocket Lab would lose for the quarter, the space company lost only $0.03.
Image source: Rocket Lab.
Rocket Lab Q3 earnings
So why are investors upset with Rocket Lab this week? Let's start with the good news about the top- and bottom-line earnings beat. Rocket Lab set a new record with $155 million in sales, as CEO Peter Beck pointed out. Product revenue rose 31% year over year, service revenue nearly doubled, and overall, Rocket Lab's quarterly sales soared 48% year over year.
So far, so good.
Operating expenses grew quickly at 46%, but not quite as quickly as revenue is rising. As a result, the company's operating profit (i.e., operating loss) margin improved a bit, from negative 49.5% to negative 38.2%.
And yet, on the bottom line, Rocket Lab lost only $18.2 million, or the aforementioned $0.03 per share. That looks like quite an improvement, and is surprising given the size of Rocket Lab's operating loss. It turns out to be less impressive than at first glance, however, because most of the improvement came from Rocket Lab recognizing accrued tax benefits on its (lack of) income.
Without those, losses still would have grown year over year, to $59.3 million.
Last but not least, free cash flow: Massive cash consumption ($101 million for the year's first nine months) combined with heavy capital investment ($106.6 million) resulted in total cash burn of $207.6 million year to date. That's up more than double from this time last year -- up 125% to be precise.
NASDAQ: RKLB
Key Data Points
Rocket Lab's really big (bad) news
All things considered then, Rocket Lab's numbers weren't really all that impressive. Losses continue, despite a lot of help from tax benefits. Revenue is growing rapidly as the company launches more and more Electron rockets -- the company says it's still on track to launch 20 or more times this year -- but costs are rising nearly as fast. And Rocket Lab continues to burn piles of cash as it races to complete development of its new Neutron reusable rocket.
Which brings us to the Neutron news.
Rocket Lab CEO Peter Beck and Gov. Glenn Youngkin cutting the ribbon at LC-3. Image source: Author photo.
As recently as August, Rocket Lab inaugurated its newest launch pad, LC-3, on Wallops Island in Virginia, and assured investors that its Neutron rocket would take its first flight before the end of 2025. This assurance came just a few months, of course, after Rocket Lab had already promised Neutron would fly closer to July, and that any delay from that date would be "not very material."
But the delay is actually starting to look kind of material.
With Rocket Lab reporting earnings just seven weeks before year-end, the company finally addressed the elephant in the room, confirming despite previous promises to the contrary, Neutron will not even arrive at the launch pad until Q1 2026. It will then launch sometime "thereafter," with management declining to say precisely how much thereafter -- only that "qualification testing and acceptance" will have to be performed after arrival, but before launch.
In other words, a launch delay to Q2 2026 is not out of the question.
What it means for investors
At this point, I think you can understand why investors were underwhelmed with this week's report. Revenue is rising, yes. Losses are shrinking (if slowly), yes. And now we know for certain that Neutron won't launch this year.
That's an awful lot of bad news for investors to be asked to absorb, all in one go. It easily explains why this stock is down 27% over the past month. (And remember that one month ago, I pointed out that Rocket Lab stock was too expensive.)
All this being said, the facts remain: Rocket Lab is making progress. Sales are rising. Losses are shrinking. Neutron is on its way. It will get here eventually, and once that happens, most analysts polled by S&P Global Market Intelligence agree that Neutron's arrival should flip the script and turn Rocket Lab stock profitable within about a year of operation -- perhaps as soon as 2027.
All we need to do now is wait and see how profitable Rocket Lab will end up being once Neutron gets here -- and whether it's profitable enough to justify the stock's $50 share price.
