00:00 Rocket Lab's stock is down roughly 44% since it went public. Today the company has a market
00:05 cap of $2.7 billion. With $446 million of cash and $100 million of debt, the enterprise
00:12 value is $2.3 billion.
00:14 Rocket Lab makes money in two main ways. It launches small satellites into orbit for multinational
00:19 companies and organisations. And its Space Systems Division designs and manufactures satellites
00:25 and spacecraft components. The company also provides orbit management, so Rocket Lab does
00:30 a bit of everything.
00:32 Rocket Lab has launched over 30 rockets and 150 satellites, but it's the Space Systems
00:36 Division that contributes the most amount of revenue, around 65% of the total. And companies
00:42 choose to build and launch satellites for a number of reasons. Communication, defence,
00:47 navigation, research and more. The launch market is expected to reach $35 billion by
00:52 2030, while the overall space market could hit over a trillion.
00:56 What makes Rocket Lab unique is its focus on smaller payloads. To launch one of its
01:00 Electron rockets costs just $6 million. Compare that with SpaceX's Falcon 9 which takes
01:06 larger payloads and costs around $62 million per launch.
01:10 That's helped Rocket Lab generate $225 million in revenue over the past 12 months, which
01:15 is an increase of almost 350% over 4 years. However, $110 million of revenue in 2022 came
01:23 from acquisitions. Strip that out and organic growth is more like 140% or an average of
01:29 about 35% annually.
01:31 And the business of space is capital intensive. Rocket Lab has gross margins under 10% and
01:36 the company reported a loss of $155 million over the past 12 months.
01:41 With cash and investments under $500 million, it wouldn't be a surprise to see the company
01:45 raise more cash in the not too distant future.
01:48 That said, Rocket Lab is making good progress. It now has a launch turnaround time of just
01:52 7 days. It's working on hypersonic testing and it hopes to launch a new reusable rocket
01:57 next year called Neutron. That rocket should carry larger payloads and generate more revenue
02:02 per launch. Of course, rocket launches will remain a tricky business and there have already
02:06 been some notable bankruptcies such as Virgin Orbit.
02:10 And while the outlook for launches is good, there are question marks over their environmental
02:14 impact. Because rockets release black soot higher up in the stratosphere, their impact
02:19 on climate could be significant.
02:21 Rocket Lab looks like an impressive company. Its rockets are in strong demand and its space
02:25 systems division provides a more stable and profitable source of revenue. But it's difficult
02:30 to calculate the return to shareholders.
02:32 If you assume Rocket Lab grows revenue at 25% per year for the next 10 years, then operates
02:37 with a 5% net income margin, the company would be making net income of only $100 million
02:42 in 10 years time. A 25 times multiple on that puts the market cap at $2.5 billion which
02:48 is close to the current valuation.
02:50 That's probably too pessimistic and the stock will surely benefit if Neutron is a success.
02:55 But for now I'm giving the stock a neutral rating. But these are my personal opinions
02:58 not financial advice. I've got no position in the stock. For more detailed investing
03:03 ideas visit our website at overlookedalpha.com
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