Shares of Rocket Lab USA(NASDAQ: RKLB) shot up over 15% at one point this week, according to data from S&P Global Market Intelligence. The new rocket launch and space flight company is building on its large ambitions by growing its revenue and backlog for existing launch systems in its second-quarter earnings report. It also announced a progress update for its large Neutron rocket system.
As of this writing at the close on Friday, Aug. 9, the stock price is now over $5. Here's why Rocket Lab stock moved higher this week.
Growing revenue and backlog
Rocket Lab is the only company outside of SpaceX to reliably launch rockets for commercial customers. It entered the market with a small rocket system called the Electron, which is now hitting launch milestones quicker than any other rocket in history. More frequent launches are key for any rocket company. Successful launches equate to revenue generation, which need to hit a certain threshold to cover the fixed cost of launch and manufacturing facilities.
The Electron rocket is launching more frequently in 2024 compared to 2023, driving revenue to grow 71% year over year in the second quarter to $106 million. It now has signed 17 new launches year to date. Equally important is Rocket Lab's space systems segment. These are products such as satellite and solar panel development, which further vertically integrate Rocket Lab's operations. Add both together and the company now has a backlog of over $1 billion, giving it a clear line of sight for future revenue.
With strong growth and a growing backlog, it is no surprise to see Rocket Lab stock up over 10% this week.
Profits hinge on a successful Neutron rocket
Another positive note from the quarter was progress updates for the larger Neutron rocket that Rocket Lab is developing. This will be much larger than the Electron, which can drive even more sales for the company. The engine for Neutron has been tested for the first time, and carbon fiber manufacturing facilities are getting implemented. The plan is to get Neutron operational for customers within a few years.
Rocket Lab needs the Neutron rocket to be successful in order for the stock to work. Right now it is spending over $75 million on research and development every quarter, which is keeping profits and cash flow in the red. However, once the Neutron system gets operational it should help lead to a step change in revenue generation.
At $5, Rocket Lab still looks like a risky stock, but one with a lot of upside. If you want to buy the stock, make it a small position in your portfolio.
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Brett Schafer has no position in any of the stocks mentioned. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.
