Rocket Lab USA, Inc. (RKLB), a leader in small satellite launch services, has seen its stock soar by more than 180% over the past six months. This dramatic rise was driven by several key developments in both its contract wins and advancements in the space sector. As the company enters its next growth phase, investors are wondering whether there’s still room to grow or if the stock has reached a peak after this recent rally.
On the one hand, Rocket Lab’s proven track record and leadership in the small launch market position it as a pivotal player in the expanding space economy. However, the sector’s volatility and long-term uncertainties leave room for caution. Here’s a closer look at what’s behind Rocket Lab’s meteoric rise and what it could mean for investors.
Competitive Edge in a Rapidly Evolving Market
Rocket Lab has carved out a niche for itself by offering small satellite launch services, which have become increasingly essential for government and commercial customers alike. With its Electron rocket, the company has successfully completed over 50 launches, positioning itself as the second-most frequently launched U.S. rocket, behind only SpaceX. As of August 8, 2024, Electron accounted for 64% of all non-SpaceX orbital launches in the U.S.
What sets Rocket Lab apart is not just its launch cadence but its ability to provide tailored, precise orbital deployments. For example, the company achieved an impressive deployment accuracy of within 8 meters, much tighter than the industry standard of 15 kilometers. This capability is particularly appealing for complex and time-sensitive missions, which could explain the growing demand. Rocket Lab has signed 17 new launch contracts in the first half of 2024 alone, including a landmark 10-launch deal with Japanese company Synspective.
Beyond launches, Rocket Lab’s space systems business has become a significant growth driver, contributing to record revenues. The company reported a 71% year-over-year increase in revenue for Q2 2024, reaching $106 million. This includes contracts for manufacturing satellites for NASA’s Mars mission and constellations for global communications.
Financial Performance: Strong Growth, But at a Cost
Rocket Lab’s financials reflect its expanding role in the space sector, but they also reveal some challenges. The company posted its highest revenue ever in Q2 2024, but it continues to operate at a loss, with a net loss of $41.6 million for the quarter. Despite the impressive 71% growth in revenue, operating expenses remain high, particularly in research and development (R&D), as the company ramps up its next big project—the Neutron rocket.
Neutron, Rocket Lab’s medium-lift rocket, is designed to serve the burgeoning market for larger satellite constellations and space station resupply missions. Development milestones were hit in Q2 2024, with the successful hot-fire testing of its Archimedes engine. While Neutron could unlock new revenue streams, it also requires significant upfront investment, contributing to the company’s negative cash flow and ongoing losses.
Rocket Lab’s management expects Q3 2024 revenue to fall slightly, projected between $100 million and $105 million. However, with a backlog of $1.07 billion, including $720 million in spacecraft under contract, the company’s long-term revenue pipeline looks robust.
The Long-Term Space Economy: Rocket Lab’s Potential Role
The space economy is projected to reach $1 trillion by 2040, according to Morgan Stanley. As the demand for satellite launches, space-based data services, and space exploration grows, Rocket Lab is well-positioned to capture a slice of this rapidly expanding market. The company’s focus on vertical integration—from manufacturing launch vehicles and spacecraft components to managing on-orbit operations—gives it a competitive advantage.
Rocket Lab is already making strategic moves to expand its capabilities. The company is working to establish itself as an end-to-end space solutions provider. This vision includes not only launching payloads but also developing its own space data services and infrastructure. For investors, this positions Rocket Lab as a diversified space company that could capture value across the entire space supply chain.
Investment Risks: High Volatility and Speculative Nature
While Rocket Lab’s growth story is compelling, it’s important to remember that the space sector remains highly speculative and prone to volatility. Rocket Lab’s stock has been volatile in the past, and space exploration companies face inherent risks, such as launch failures, delays, and technological uncertainties.
Moreover, the company’s reliance on a small number of key customers—like the U.S. government and large commercial satellite operators—leaves it vulnerable to shifts in government policies and funding, as well as customer financial health. Its R&D spending on Neutron, while promising, is a long-term bet, and any delays in its development could weigh on the stock.
What Should Investors Do?
Rocket Lab stock’s skyrocketing rally certainly reflects optimism about its future, but investors should weigh that against the risks. For those with a high-risk tolerance and a long-term outlook, Rocket Lab could be an attractive investment as it continues to innovate and expand its offerings in the space sector. Its growing backlog and leadership in the small satellite market provide a solid foundation for future growth.
However, for more cautious investors, it may be worth waiting for the stock to cool off after its recent surge. The speculative nature of space stocks, combined with Rocket Lab’s ongoing cash burn and R&D costs, suggests that the stock could be volatile in the short term.
