Rocket Lab USA (NASDAQ: RKLB), the force behind the Electron orbital rocket, became public through a fusion with a special purpose acquisition company (SPAC) three years prior. Following an initial trading value of $11.58, soaring briefly to $20.72, it now hovers below $7 a share.
Similar to numerous other SPAC-affiliated entities, Rocket Lab overstated its prospects pre-merger. Its failure to meet those projections resulted in a plummeting stock price. Mounting interest rates compounded this problem, deflating its valuations.
Could this sidelined space stock regain momentum over the ensuing three years?
Image source: Getty Images.
The Revenue Model of Rocket Lab USA
Inaugurated in New Zealand in 2006, Rocket Lab earned the distinction of being the first Southern Hemisphere private company to venture into space with the Ātea-1 suborbital rocket in 2008. It shifted its headquarters to California in 2013.
Since its maiden voyage in 2017, Rocket Lab has launched 52 Electron rockets, introduced its initial Photon satellite bus in 2020, and facilitated the deployment of 192 satellites. The company currently manages three dedicated launch pads and serves a varied clientele including NASA, the U.S. Space Force, the Swedish National Space Agency, Capella Space, and BlackSky.
While sharing a semblance with SpaceX in producing partially reusable rockets, Rocket Lab and SpaceX target distinct markets. The Electron rocket has a cargo capacity of roughly 250 kilograms, markedly less than the Falcon rocket’s tenfold capacity of SpaceX. Rocket Lab anticipates the upcoming Neutron rocket to support even bulkier payloads, up to 15,000 kilograms by its slated 2025 debut.
Evaluating Rocket Lab’s Growth Trajectory
Initially projecting a revenue growth CAGR of 97% from $35 million in 2020 to $267 million by 2023 at its pre-merger display, Rocket Lab slightly missed the mark with a three-year CAGR of 91%, reaching $245 million.
The company maintains a robust growth momentum. Conducting six Electron missions in 2021, followed by nine in 2022, and further ten in 2023. In the first half of 2024 alone, it bagged 17 new launch contracts. Additionally, its adjusted gross margin upped from a negative 29% in 2021 to a positive 28% in 2023, leveraging expansion within its higher-margin space systems segment to lessen reliance on the lower-margin launch services division.
Casting a shadow over its glowing growth rates, the company’s adjusted EBITDA fell short of its initial forecast by a wide margin. Initially eyeing a positive adjusted EBITDA margin of 10% by 2023, Rocket Lab screeched to a halt with a negative 37% reality.
Forecasts predict a revenue CAGR of 54%, skyrocketing to $887 million by 2026. However, a bleak outlook unveils a lapse until 2026 before the adjusted EBITDA swings positive. These clouds hint towards a possibly unsustainable business framework.
Buoyed by a cash reserve of $497 million by the last quarter’s end, boasting a manageable debt-to-equity ratio of 1.6, and a moderate uptick of about 10% in share count over the prior three years, Rocket Lab doesn’t seem poised to dilute its investors through copious stock issuances.
Speculating Rocket Lab’s Trajectory in Three Years
With an enterprise value of $3.7 billion, Rocket Lab’s stock stands conservatively priced at 6 times next year’s earnings. Anticipate potential headwinds from peers like SpaceX and industry giants such as Boeing as the private space frontier intensifies. This may complicate efforts to scale operations and rein in expenditure.
Should Rocket Lab continue inking new agreements, executing successful launches, broadening its rocket portfolio, and acquiring additional space-centric startups, its stock might experience stabilization, propelling it higher in the coming three years.
Yet, as a profoundly speculative investment, Rocket Lab may not captivate significant attention until interest rates ebb and the overarching economic landscape brightens. Investors must acknowledge the likelihood of sizable fluctuations before witnessing substantial gains for those displaying patience.
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