Rocket Lab is Boosting Pricing Levels and Expresses Contentment
Rocket Lab is Boosting Pricing Levels and Expresses Contentment
Small rocket manufacturing company Rocket Lab (RKLB 6.16%), despite its size being second only to the most frequent rocket launcher in the U.S., gave investors a rollercoaster ride last week. It surged more than 40% on Wednesday morning, only to give back much of its gain in the afternoon and on Thursday. However, it managed to regain its losses on Friday.
The cause of this turbulence was the Q3 earnings report.
Rocket Lab's Financial Performance
Rocket Lab reported its Q3 losses last week, which was a significant failure to turn a profit. Despite a 55% increase in sales and surpassing its annual launch record for 2023 with several months left in 2024, the company still reported a loss of $0.10 per share. Although this was better than the $0.11 Wall Street predicted, it was still a loss.
However, investors chose to focus on future profits at Rocket Lab, which are plentiful.
After reporting a 55% increase in sales in Q3, Rocket Lab announced that it would more than double its revenues year over year in Q4. This confirmed the bullish theories that the company's growth rate is accelerating. The demand from satellite companies for Rocket Lab's product, the Electron small rocket, is driving this growth.
In an industry where companies often underprice each other in order to win contracts, and boast about the low cost of their rockets (yes, I'm talking about SpaceX), Rocket Lab's CEO, Sir Peter Beck, took an unusual approach. Instead of cutting costs and reducing prices, he announced that Rocket Lab had increased its average selling price per launch to $8.4 million in Q3.
Not only were customers happy to pay this price, but they placed $55 million worth of new orders in the quarter.
Rocket Lab's New Rocket
And that's not all. Rocket Lab also announced that its new 'Neutron' medium-lift vehicle had secured a contract for "multiple launches" with an undisclosed customer. Despite Neutron not having launched yet, this customer has such confidence in it that they plan to use Neutron to deploy their entire constellation of satellites.
At an estimated $50 million per launch, Neutron is expected to further accelerate Rocket Lab's revenue growth rate.
Revenues and Profits for Rocket Lab
Given the above information, you might think that Rocket Lab's stock surge was justified. However, there's even more good news.
According to analysts polled by S&P Global Market Intelligence, Rocket Lab stock is not expected to turn profitable before 2027 at the earliest. However, earnings could turn positive even sooner than that.
During their Q3 earnings report, CEO Beck discussed the situation with analysts from Payload Space. He explained that the main reason Rocket Lab is losing money right now is due to the heavy investment in research and development for Neutron. But as soon as Neutron switches from R&D to launching, those costs will disappear, and the situation will change dramatically: "The moment you start throwing customers at that, it flips," he said.
The Impact on Rocket Lab's Stock
While it's uncertain whether Neutron's launch next year will immediately flip Rocket Lab's gross profit margin from 11% to the expected 40%-50%, the prospect of this happening has grabbed investor attention. Despite a few bumps on the road, Rocket Lab stock looks like it's heading for the moon.
Investors were optimistic about Rocket Lab's future profits, disregarding the Q3 loss, as the company announced a planned 100% increase in revenues for Q4. This growth is attributed to the high demand for Rocket Lab's Electron small rockets from satellite companies.
Regarding finance, Rocket Lab's CEO, Sir Peter Beck, made an uncommon move by increasing the average selling price per launch to $8.4 million in Q3, which customers willingly paid, resulting in $55 million worth of new orders.