Shares of Rocket Lab(NASDAQ: RKLB) shot up 40.6% this week, according to data from S&P Global Market Intelligence. The space flight company posted earnings results for the third quarter that showed more strong revenue growth along with product updates for upcoming new business lines. Shares are up 263% year to date (YTD) with investors getting increasingly optimistic about the future of the space company.
Here's why Rocket Lab stock was soaring this week.
Scaling revenue
Q3 showed more of the same for Rocket Lab: revenue growth. Sales were up 55% year over year to $105 million, driven by growth from its space systems segment. Even better, the company's backlog grew 80% year over year to $1.05 billion, which is a huge multiple of its annual revenue. A big backlog is important for a space start-up such as Rocket Lab. Building and launching space systems is expensive, so you need reliable customers you know will show up at the door.
Rocket Lab's trailing revenue is up a whopping 484% since going public in 2021, making it one of the fastest-growing companies in the world. It is one of the only commercial providers of rocket flights in the world. Only SpaceX consistently launches more rockets into orbit than Rocket Lab. With its small Electron rocket, it has built up loyal commercial customers and a brand revolved around safety and efficiency.
Profits are still up in the air, with a $139 million operating loss over the last 12 months due to its heavy investments for growth. Over time, investors will need to see this flip into positive territory. It has $442 million in cash on the balance sheet. This gives it a long runway to keep losing money -- but not an endless amount. Eventually, all companies need to generate a profit if they are going to create value for shareholders.
RKLB Revenue (TTM) data by YCharts.
All bets on the Neutron
The key to further success for Rocket Lab is the Neutron rocket. This will have a much larger payload compared to the Electron and compete directly with SpaceX for customers. Management says the company is spending a ton of money developing the Neutron; the segment accounts for the majority of its losses.
It will be expensive to build, but once built, the Neutron can give Rocket Lab the next level of growth it is looking for. It plans to charge around $55 million per launch of the Neutron, which on its own is close to 20% of Rocket Lab's trailing annual revenue. If the company can launch the Neutron multiple times per year, direct revenue should start growing quickly.
And this doesn't consider its space systems revenue, either, or the planned satellite constellation Rocket Lab is set to build, getting further into competition with SpaceX. Rocket Lab is a high-risk stock, but given the progress it has made in developing into a vertically integrated rocket company, it is no surprise to see the stock up so much this week.
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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.
