Rocket Lab (RKLB +3.27%) reported its financial Q3 results on Monday evening, and investors were not pleased. As I write this Thursday evening, this rocket stock is down a distressingly unlucky 13%.
And why are investors unhappy? It's not because Rocket Lab "missed earnings." It didn't. To the contrary, Rocket Lab delivered a solid earnings beat with more revenue ($155 million) than expected, and fewer losses ($0.03) than feared.
Instead, investors seem more upset with the fact that Rocket Lab, which has been promising all year long that it would launch its long-awaited reusable Neutron rocket before the end of 2025, will in fact not launch in 2025 after all. In fact, it might conceivably have to wait until Q2 2026.
Neutron, of course, is the rocket that Rocket Lab says will change everything about its business, enable the company to compete head-to-head with SpaceX and Falcon 9, permit gross margins to expand, and flip the company from losses to profits. This rocket is arguably the single most important reason analysts (used to) agree Rocket Lab would turn profitable in 2027, upon reaching a launch cadence of between three and five missions per year.
And now this prediction has been thrown into doubt by Neutron's delay.
Image source: Rocket Lab.
What you need to know about Neutron
How worried should investors be about the delay? Sir Peter Beck, Rocket Lab's CEO, addressed this question head-on in his conference call with analysts after earnings came out Monday. The "tl;dr" on his advice is that you don't need to worry.
But perhaps you want a bit more detail on why not?
To start with, Beck remains "resolute" on ensuring Neutron reaches orbit successfully on its first try. "We have a proven process for delivering and developing complex space flight hardware," says the CEO, involving extensive on-the-ground testing before flight. Sticking with this process means Neutron will only fly "when we're very confident it's ready, and we're not going to break the mold of the Rocket Lab magic."
If that requires taking "a little bit more time to retire the risks and stick to the Rocket Lab process," then Beck's fine with that. And if it costs a bit more money, well, "the labor cost for the [Neutron] program is about $15 million a quarter, which we make back 4x over a single launch anyway." So from that perspective, the cost of delay is insignificant -- especially in light of the PR value of being able to boast Neutron succeeded on its first try.
When will Neutron launch (and land)?
Beck still believes Neutron can launch "in Q1 of next year." Still, that depends on the company's testing and acceptance testing program showing green lights all the way. If they hit a speed bump during testing, though, delay to Q2 therefore isn't out of the question.
When the rocket does finally launch for the first time, Rocket Lab does not intend to try to land it back on Earth. The barge Rocket Lab is building to receive landing Neutrons, dubbed the "Return on Investment," won't be ready in time -- but it will be ready for Neutron flight number two.
The upshot for investors
The good news here is that even if investors are champing at the bit waiting to see Neutron launch, and waiting even longer to see Neutron land, Rocket Lab's customers appear fine with the delay.
Beck confirmed on the conference call that Rocket Lab already has three customers contracted to ride Neutron to orbit, and no cancellations. The CEO also mentioned that "launch congestion continues to build up across the country" -- one reason that Rocket Lab built itself a new launch pad in Virginia earlier this year. It's probably also a good indication that demand for launch services remains insatiable.
Long story short, the launch market will still be there waiting, when Neutron is finally ready to begin servicing it.
NASDAQ: RKLB
Key Data Points
Does all this mean that Rocket Lab's post-earnings sell-off was an overreaction, though? Has it created a buying opportunity in Rocket Lab stock? Not necessarily.
Rocket Lab does still cost more than 46 times trailing sales, after all, which is quite a steep valuation. And Rocket Lab is still losing money. Worse, in addressing an analyst question from Andres Sheppard at Cantor Fitzgerald, CEO Beck and CFO Adam Spice appeared to confirm that delaying first launch from 2025 to 2026 will postpone the company's schedule for launch cadence acceleration, which anticipates one launch in the inaugural year, accelerating to three launches the next year, and five launches two years out.
This means that a first launch in 2026, instead of 2025, will push the five-launches-per-year year out to 2028 instead of 2027. It also probably also means no earnings in 2027, and that investors will have to wait until 2028 for Rocket Lab's first profit.
From an investor's perspective, that's the real disappointment.
