Shares of small launch vehicle Rocket Lab (NASDAQ: RKLB ) fell 3% on Wednesday after the company — sort of a small, publicly traded version of SpaceX — reported modest second-quarter revenue growth combined with widening losses. Bottom Line.Rocket Lab grew revenue by 12% year-over-year in Q2 – and roughly tripled its gross profits compared to the previous quarter.
However, operating expenses increased by 57% as the company continued to invest heavily in research and development and continued to build out its startup infrastructure. All told, Rocket Lab lost just under $46 million -- $0.10 per share, down 25% from a year ago.And this with the number of shares 3% higher than a year ago, so the losses were spread over more shares outstanding.Bad news and good newsWell, that's the bad news. Here's the good news.
First, Rocket Lab has done a good job of putting out its cash fire. Free cash flow in the quarter, while negative at $54.7 million, was 35% less negative than a year ago, when Rocket Lab burned through $83.7 million.Rocket Lab also successfully launched three of its Electron rockets in the quarter — a tie for its most active quarter ever.
Two rockets carried customer cargo into space (and one of these rockets was recovered for possible later reuse). The third rocket flew as a suborbital hypersonic test flight for the US military's "HASTE" project. Meanwhile, Rocket Lab continued to make progress on its new Neutron intermediate lift rocket prototype, including beginning construction of a new launch pad to support the rocket at NASA's Wallops Island launch facility in Virginia.
Ten is a magic number
Perhaps the best news of all, however, was in the area of new business. Since reporting first-quarter results, Rocket Lab said it has booked orders from its customers for 10 new launches, including an order for five launches for space company BlackSky (NYSE: BKSY ). When you consider that earlier this year CEO Peter Beck set a goal of launching 15 times over the four quarters of 2023, the fact that Rocket Lab racked up 10 orders in just one quarter is pretty impressive.
If Rocket Lab could maintain this rate of new order acquisition, it would mean an annual pace of 40 launches per year.That's more than the 39 launches the company has managed to complete since launching six years ago.What the future will bringThis all sounds pretty promising for Rocket Lab, but don't expect it to translate into profits for the company just yet.
Moving from results to guidance, Rocket Lab told investors that third-quarter revenue is likely to be in the range of $73 million to $77 million -- a rapid 25% increase from last year's Q3 revenue of $60.1 million USD. As we've come to expect, most of that revenue (about 60%) will come from the company's fast-growing "space systems" division, and not from rocket launches per se, despite all the new launch orders Rocket Lab is racking up. in.
However, this is good news for investors. As data from S&P Global Market Intelligence clearly shows, launch services continue to lose money for Rocket Lab, even on a gross margin basis, while space services are a money maker, generating positive gross profit margins of 17%.
Even better news for investors is that both of these gross profit margins are generally trending higher in 2023. Gross margins were 23.5% in Q2 2023 (better than full year 2022) and will range from 21% to 23% in Q3.
The bad news, however, is that gains still seem a long way off. Applying the midpoint of projected gross margins to the midpoint of managed revenue, it looks like Rocket Lab will likely earn only $16.5 million in gross next quarter. And that amount is immediately eaten up by operating costs of nearly $52 million.
That leaves investors with essentially no chance of seeing Rocket Lab turn a profit this year. We'll just have to wait for that. How long? According to analysts, 2025 Rocket Lab will earn its first profit in 2025.When our team of analysts has a stock tip, it can pay to listen. After all, the newsletter they've been running for over a decade, the Motley Fool Stock Advisor, has tripled the market.*
They've just revealed what they believe are the ten best stocks for investors to buy right now... and Rocket Lab Usa isn't one of them! That's right - he thinks these 10 stocks are an even better buy. Rich Smith holds positions in Rocket Lab USA. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a
Investing in the stock market can be as exciting as launching a rocket, and Rocket Lab (NASDAQ: RKLB ) is no exception. This innovative aerospace company is riding a wave in the space industry, but as with any investment, assessing the long-term potential is key. In this article, we'll examine the current state of Rocket Lab stock and whether investors should stay on board.
Rocket Lab's growth potential
Rocket Lab is gaining attention for its unique approach to space launches, which meets the growing demand for small satellite deployments. With an expanding list of commercial and government customers, the company has the potential to become a major player in the fast-growing space industry. As demand for satellite services continues to grow, Rocket Lab could ride this wave and significantly increase its revenue.
Innovation and technology
One of the significant advantages of Rocket Lab is its focus on innovation and cutting-edge technology. Known for its cost-effective and rapid launch capabilities, the company's Electron rocket was a game-changer. Developing reusable technologies like the first phase of Electron's recovery could lower startup costs and make Rocket Lab even more competitive.
Competition in the market
While Rocket Lab has carved out a niche in the small satellite launch market, it's important to acknowledge the competition. SpaceX and Blue Origin, among others, are formidable players with ambitious goals. Investors should keep an eye on how Rocket Lab is positioning itself in this competitive environment and whether it can maintain its growth momentum.
Financial performance
Assessing Rocket Lab's financial health is critical for investors. Since the last reported financial year, the company has shown consistent growth in sales. However, it is essential to keep an eye on the balance sheet, debt levels and profitability to keep the company on a sustainable trajectory.
Like any investment, Rocket Lab shares come with risks. Regulatory challenges, launch failures and changing market dynamics are just some of the factors that could affect the company's growth. Investors should diversify their portfolios and consider their risk tolerance before making a significant investment in any single stock, including Rocket Lab.
Rocket Lab's share journey has been exciting, with significant growth potential driven by innovation and growing demand for satellite services. While the company faces competition and associated risks, its unique approach and technological advancements position it for long-term success. Investors should carefully evaluate their investment goals and risk tolerance, but staying on Rocket Lab's path could offer an exciting opportunity in the ever-expanding space industry.
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