Small rocket manufacturing company Rocket Lab(NASDAQ: RKLB) (which despite its size is the second-most frequent rocket launcher in the U.S.) took investors for quite a wild ride last week, shooting up more than 40% Wednesday morning, then giving back much of its gain in the afternoon leading into Thursday... before turning around and winning back much of its gains on Friday.
The catalyst behind all the turbulence: Q3 earnings.
Rocket Lab by the numbers
Rocket Lab reported its Q3 earnings last week, and by "earnings" I mean losses, because Rocket Lab didn't actually earn anything last quarter. Not even close.
Despite growing sales 55% and beating its launch record for all of 2023 with months to spare in 2024, Rocket Lab actually lost $0.10 per share for the quarter. (On the plus side, that was better than the $0.11 per share Wall Street expected, but it was still a loss -- and a 25% bigger loss than suffered in Q3 2023.) On the face of it, that seems like bad news. But investors didn't look at it that way at all. Instead, investors focused on the prospects for future profits at Rocket Lab.
And Rocket Lab has those in abundance.
After growing revenues 55% in Q3, Rocket Lab said last week that it will more than double revenues year over year in Q4, confirming bullish theories that the company's growth rate is actually accelerating. And powering that acceleration is strong demand from satellite companies for Rocket Lab's product, the workhorse Electron small rocket.
In a market where space companies generally try to underprice each other to win contracts, and brag about the low cost of their rockets (yes, I'm talking about SpaceX), CEO Sir Peter Beck took a novel approach in Rocket Lab's Q3 report. Instead of cutting costs and cutting prices, he said Rocket Lab raised its average selling price per launch in Q3, to $8.4 million.
The fact that customers aren't just paying that price happily, but placed $55 million worth of new orders in the quarter, is testament to the popularity of the product.
Rocket Lab's new rocket
And that's not all they like. Rocket Lab also announced last week that its new Neutron medium-lift vehicle has won a contract for "multiple launches" with an undisclosed customer. Neutron hasn't even launched yet, but this customer has so much confidence in it that it's said to be planning to use Neutron to deploy its "entire constellation" of satellites.
And with Neutron reportedly priced at about $50 million per launch, that's going to accelerate Rocket Lab's revenue growth rate even more.
Revenues for Rocket Lab, and profits, too?
You might think all of the above was good enough news to justify Rocket Lab stock's rocket trip higher last week -- but there's actually even more good news in store.
Consider: According to analysts polled by S&P Global Market Intelligence, Rocket Lab stock isn't supposed to turn profitable before 2027 at the earliest -- a date pushed back in tandem with delays in getting Neutron ready to launch. But earnings could turn positive even sooner than that.
Discussing its earnings report with analysts from Payload Space last week, CEO Beck pointed out that the main reason his company is losing money right now is because all of the investment it is making in research and development on Neutron. But as soon as Neutron switches from R&D to launching, those costs go away and the situation changes dramatically: "The moment you start throwing customers at that, it flips," he said.
What it all means for Rocket Lab stock
Now, does this mean that when Neutron starts launching next year, Rocket Lab's gross profit margin in space launch will immediately "flip" from 11% to the 40% to 50% gross margin Beck expects, potentially dropping a net profit to the bottom line?
Maybe. Only time will tell.
But for now, just the prospect of that happening seems sufficient to have grabbed investor attention. Despite a few bumps on the road en route, Rocket Lab stock looks like it's on a rocket trip to the moon.
Should you invest $1,000 in Rocket Lab USA right now?
Before you buy stock in Rocket Lab USA, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Rocket Lab USA wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $870,068!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. TheStock Advisorservice has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of November 11, 2024
Rich Smith has positions in Rocket Lab USA. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.
