The more I learn about it, the more excited I get about the huge multibagger potential.
Few people really understand it, but many people talk about it.
We are talking about Rocket Lab $RKLB (-0,55%) !
1 Background and history of Rocket Lab
The history of $RKLB (-0,55%) began in 2006 when aerospace engineer Peter Beck from New Zealand founded the company.
As a teenager, Peter Beck enjoyed working on projects such as turbocharging an old Mini and launching water rockets. While training as a toolmaker, he began experimenting with rockets and propellants, even building things like a rocket-powered bicycle, scooter and jetpack. He later worked in product design and then moved to another company where he learned more about advanced materials such as composites and superconductors. He even bought a cruise missile engine from the USA.
In 2006, Peter Beck founded Rocket Lab in New Zealand. He was able to attract investors, including Mark Rocket, who helped finance the company and was co-director from 2007 to 2011. Beck's passion for building things from scratch played an important role in the company's growth.
His vision was to facilitate access to space by developing lightweight rockets specifically designed to launch small satellites - a growing need in the industry.
(Peter Beck, CEO)
In just three years $RKLB (-0,55%) the first private company in the southern hemisphere to reach space.
This milestone was achieved in November 2009 with the launch of the Ātea-1 probe rocket. Probe rockets follow a trajectory pattern to collect data and measurements for future missions, making them essential for research and space exploration.
Rocket Lab's Ātea-1 was launched from a private island off the coast of New Zealand. Interestingly, the island belonged to one of Rocket Lab's major investors, New Zealand banker Michael Fay.
Following this success, Rocket Lab began to attract significant interest from both government and military sectors. The US government, including NASA, showed particular interest in the company's potential to launch nanosatellites on small rockets. As part of the collaboration, Rocket Lab secured several contracts to study the feasibility of using small rockets for space applications. Although the initial funding for these contracts was modest, they were instrumental in providing Rocket Lab with access to valuable NASA resources.
The relationship of $RKLB (-0,55%) with U.S. defense agencies, particularly DARPA and the Office of Naval Research (ONR), was also a key factor in the company's growth.
DARPA funded early research projects such as the development of a high-density rocket propellant called Viscous Liquid Monopropellant (VLM), for which Peter Beck holds a US patent. These defense contracts not only helped Rocket Lab financially in the early stages, but also enhanced its reputation as a company with innovative technologies. One of the notable defense projects was "Instant Eyes," a tactical unmanned aerial vehicle (UAV) designed for real-time intelligence gathering that showcased Rocket Lab's versatility and innovation.
Lockheed Martin $LMT (+0,04%) also became an important partner during Rocket Lab's early growth. The company participated in funding rounds and supported Rocket Lab's development programs, adding another layer of credibility and financial support. Their investment underscored the strategic importance of Rocket Lab's technology, and Lockheed's involvement enabled Rocket Lab to build a stronger network within the space industry.
This combination of commercial and defense contracts played a critical role in the company's survival and early growth, allowing it to secure both funding and credibility in the aerospace and military industries. By entering into these early partnerships, Rocket Lab laid the foundation for its later expansion into the global space industry.
After $RKLB (-0,55%) established a strong relationship with the U.S. government and NASA and secured numerous contracts and patents, the company decided to relocate its operations to the United States in 2013. This strategic move was to allow it to tap into the larger market, utilize advanced facilities and take advantage of the growing opportunities in the US space industry.
Despite this move, New Zealand remains an integral part of Rocket Lab's operations. The country continues to be the location for the rocket launch base on the Māhia Peninsula, which offers a unique and strategic location for launching rockets into various orbits. New Zealand's favorable geographic location and dedicated team play a critical role in Rocket Lab's global launch capabilities.
By maintaining close ties with New Zealand, Rocket Lab benefits from the country's supportive regulatory environment and established infrastructure, which was essential to the company's early success. This dual presence allows Rocket Lab to effectively serve a global customer base while leveraging the strengths of both locations.
2.Electron
In the years following the move to the USA, Rocket Lab made significant progress in the development of its flagship rocket Electron. The company's focus shifted to refining its technology and scaling operations, which required multiple rounds of funding to support these efforts. Each round of investment played a critical role in advancing the design, manufacturing and testing of the Electron rocket.
Rocket Lab's approach to the Electron was innovative and ambitious. The rocket was developed to meet the growing need for reliable and cost-effective launches for small satellites. It features a unique carbon composite structure that reduces weight and cost while maintaining structural integrity. The Electron's Rutherford engines, which use a combination of electric pumps and a novel liquid oxygen and kerosene propellant system, represent a significant technological advance and set the rocket apart from traditional designs.
Electron's first flight took place in May 2017, when it reached space but failed to reach orbit. Electron's second flight took place in January 2018, when it successfully launched two satellites into orbit. The success of this launch validated Rocket Lab's approach and solidified Electron's role as a cost-effective solution for launching small payloads into space.
The launch of the Electron revolutionized the small satellite launch market by providing an affordable launch option for small satellites that were previously limited by the availability and cost of rideshare on larger rockets. This success marked a significant advance since the early days of Rocket Lab and set the company on a path of rapid growth and expanded market presence.
Following the successful debut of the Electron rocket in 2018, Rocket Lab continued to chart its course, making significant progress and improvements to the rocket's design and operational capabilities:
- Improved performance and reliability:
In the years following the Electron's initial success, Rocket Lab focused on refining the rocket's performance and reliability. The company made several upgrades to the Electron's design, including improvements to the Rutherford engines and structural modifications to increase performance. These improvements were aimed at increasing the rocket's payload capacity and expanding its mission capabilities.
- Increased launch frequency:
Rocket Lab made progress in increasing the frequency of Electron launches. The company established a more efficient launch process and improved turnaround times between missions. By optimizing its operations, Rocket Lab was able to offer more frequent launch opportunities for its growing customer list. This efficiency helped cement Electron's reputation as a reliable and flexible launch vehicle for small satellites.
- Reusability efforts:
In keeping with industry trends toward reusability, Rocket Lab also explored options to make the Electron rocket more sustainable. The company tested and developed technologies to recover and refurbish rocket components to reduce costs and environmental impact. While full reusability has not yet been achieved, these efforts marked an important step toward more cost-effective and environmentally friendly space launches.
- Mission diversity and enhanced capabilities:
Rocket Lab continued to diversify its mission profile with the Electron rocket. The rocket successfully completed a variety of missions, including satellite launches for Earth observation, technology demonstrations and scientific research. Notable missions included the CAPSTONE mission for NASA to the moon, a major milestone that demonstrated Rocket Lab's ability to handle complex interplanetary missions.
In addition, Rocket Lab conducted the HASTE (Hypersonic Accelerator Suborbital Test Electron), a modified version of the Electron for hypersonic and suborbital missions, further expanding the rocket's versatility and demonstrating its utility in supporting defense and exploration applications. This makes the Electron not only a launch vehicle for small satellites, but also an important resource for hypersonic test programs and opens up a new growth path.
- Global launch locations:
To meet growing demand and expand its global reach, Rocket Lab developed additional launch sites. The company continued to utilize its original base on the Māhia Peninsula in New Zealand while moving forward with plans for a new launch facility in the US. This expansion was intended to provide greater flexibility and support a higher volume of launches, strengthening Rocket Lab's position as a major player in the small satellite launch market.
- Technological innovations:
During this time, Rocket Lab continued to innovate and integrate new technologies and systems into the Electron rocket. These innovations included advances in avionics, propulsion systems and payload integration, all of which contributed to improved performance and mission successes.
In 2024, Rocket Lab's Electron rocket remains a cornerstone of the company's launch services and continues to provide reliable and cost-effective solutions for launching small satellites. Ongoing improvements and strategic developments, such as the HASTE program and high-profile missions like CAPSTONE, have positioned the Electron rocket as the leading choice for customers seeking efficient access to space.
Brief overview of some of the successes of $RKLB (-0,55%) 's Electron this year (H1 2024):
- 17 new launch contracts signed YTD, with a total contract value of $141 million;
- Electron is now the third most launched rocket in the world, behind only Falcon 9 and China's Long March;
- Achieved a 100% increase in launch rate in H1 2024 compared to H1 2023;
- Electron accounts for 64% of all non-SpaceX launches in the U.S. so far in 2024
- Electron is the fastest commercially developed rocket to reach 50 launches and is expected to be the fastest to reach 100 launches;
- On its 50th mission, Rocket Lab deployed a customer satellite to within eight meters of its target, well above the industry average of 1,500 meters. This precision positions Electron as the preferred choice for complex missions such as rendezvous and proximity operations, constellation replenishment and customized orbits.
Rocket Lab is the undisputed leader in small launches, with differentiated capabilities that demonstrate why many satellite operators are willing to pay a premium for Electron.
Basics of Electron's business model explained 👇🏻
$RKLB (-0,55%) 's Electron offers something unique in the launch market: a launch service that is tailored to the specific needs of each customer. This means that customers can choose and change their launch date, select their launch location and specify exactly where they want to be placed in orbit. They can also launch with an incredibly short lead time - sometimes as little as eight weeks from signing the contract to launch. This flexibility is something that rideshare launches on larger rockets simply can't offer.
However, this flexibility also makes it difficult to predict exactly how many launches will take place in a given quarter, which can lead to short-term volatility in revenue recognition.
But here's the key point: Rocket Lab receives the bulk of the money (up to 90% of the contract value) well in advance of the launch date, thanks to their billing model. Even if the launch date is delayed, the impact on cash flow is minimal. Revenue is only recognized on the launch date according to accounting practices, but the money has already been received, showing the strong underlying cash flow of their business.
🚀 16 launches in 2024, an increase of 60% year-on-year
🚀 4 launches in the last 4 weeks (2 of which in less than 24 hours of each other)
🚀 100% mission success rate for the year 2024.
3rd photon
The success of $RKLB (-0,55%) with the Electron rocket paved the way for expansion and diversification. From 2020, the company began to expand its focus beyond pure launch services. This strategic shift aimed to create a more comprehensive portfolio of space-related products and services and thus strengthen its position in the space industry.
A milestone in this diversification strategy was the launch of Rocket Lab's spacecraft development division. In 2020, Rocket Lab launched its Photon satellite platform to the market, marking the company's entry into the spacecraft sector. The Photon platform offers a complete satellite solution that includes design, manufacturing and operations. By providing end-to-end satellite services, Rocket Lab expanded its role from a pure launch provider to a full-service space company.
The Photon satellite platform was developed to meet the needs of a variety of missions, from Earth observation and scientific research to communications and technology demonstrations. This move allowed Rocket Lab to address a broader range of customers and projects and further solidify its presence in the space industry.
4. acquisitions
The expansion of $RKLB (-0,55%) 's expansion into the field of space systems was not only based on internal developments, but was actually driven by a series of strategic acquisitions.
In 2020, Rocket Lab acquired Sinclair Interplanetary, a leading manufacturer of satellite hardware, which strengthened the company's capabilities in the manufacture of key satellite components such as reaction wheels and star sensors.
This acquisition was accompanied by other acquisitions aimed at expanding Rocket Lab's technical offerings.
In December 2021, Rocket Lab acquired Advanced Solutions and Planetary Systems, expanding the company's ability to offer mission simulations, flight software and separation systems for spacecraft.
In early 2022, the acquisition of SolAero Holdings, a leader in space solar arrays, was added, adding the important capability to manufacture advanced solar cells for space applications.
In addition, Rocket Lab acquired SailGP Technologies, bringing on board the facilities and team from Warkworth, New Zealand.
These acquisitions enabled Rocket Lab to offer a full spectrum of satellite and spacecraft technologies, making it one of the few companies that can provide end-to-end mission solutions from spacecraft to launch.
By combining its own innovations, such as the Photon platform, with strategic acquisitions, Rocket Lab has positioned itself as a key player in both launches and space systems, significantly expanding its service offering and increasing its competitiveness.
5.Space Systems segment
The Space Systems segment essentially focuses on developing and providing the technology that makes space missions possible.
This includes, among other things
- Satellites: They design and build small satellites that can be used for various purposes, such as collecting data from Earth, communications or scientific research.
- Components: They manufacture important parts that are used in satellites and spacecraft, such as solar cells for energy supply, sensors for data collection and radios for communication.
- Software and ground systems: They develop software and systems that help manage satellites from Earth and ensure they function properly in space.
In short, this segment helps put working satellites into space and support their operations.
This is exactly why I believe Rocket Lab has a huge advantage over its competitors.
competitors: The company develops everything in-house and doesn't rely on any suppliers.
While most believe that $RKLB is solely focused on rocket launches, the "Space Systems" segment accounted for over 70% of sales in the last quarter!
6 The future of Rocket Lab
What's next for $RKLB (-0,55%) ? - The Neutron-rocket!
As Rocket Lab continues to push the boundaries of space technology, the company's next big step is the development of the Neutron rocket. This new rocket represents a significant evolution of Rocket Lab's capabilities and a strategic expansion of its launch offerings.
Introduced as a larger and more powerful vehicle than the Electron, the Neutron rocket is designed to meet the space industry's growing demands for medium launch capabilities. With a focus on versatility and efficiency, the Neutron is expected to handle a wider range of payloads and mission profiles, including larger satellite constellations and deep space missions.
The Neutron rocket offers several key features that set it apart from its predecessors. It is partially reusable, with plans to recover and refurbish its first stage to reduce costs and increase launch frequency. This reusability is in line with broader industry trends and aims to make access to space more sustainable and affordable.
In addition, the Neutron rocket incorporates advanced technologies. Its larger payload capacity enables the deployment of heavier and more complex payloads, expanding Rocket Lab's ability to serve a variety of customers and mission types.
Everything is moving in the right direction to ensure that the Neutron rocket be launched by mid-2025 can be launched.
Peter Beck (CEO) is often asked why $RKLB is investing in Neutron, a medium launch vehicle, and how the company plans to compete with it:
Currently, there is virtually a monopoly in the medium launch capability market, and demand is growing rapidly, especially for satellite constellation deployment.
With over 10,000 satellites to be launched by the end of 2030, Neutron is perfectly positioned to revolutionize this market.
Rocket Lab's proven success with the Electron shows that the company knows how to build reliable, market-leading vehicles. By working closely with customers, they have designed Neutron to meet specific needs and are well on their way to launching it quickly. Their track record in investment and accurate market assessment suggests that Neutron will be a great success, just like Electron.
With a starting price of approximately USD 60 million, Neutron will be a game changer for Rocket Labs revenue.
In addition to playing a critical role in unlocking the large mid-stage launch market, Neutron is also the missing piece of the puzzle to complete $RKLB's space ecosystem.
And with that, it's time to clear up the most common misconception about the company - Rocket Lab isn't just a "startup", it's an end-to-end space company 👇🏻
Sure, they're industry leaders in the rocket launch business - Electron for small launches and the upcoming Neutron to enter the medium launch market - but that's only part of what they do.
Peter Beck breaks it down into three main areas:
- The ride: the first step is getting to space, and Rocket Lab has mastered that with their Electron rocket, and soon with Neutron, which will tackle the medium launch market.
- The tools: Once in space, the real work begins. Rocket Lab doesn't just send things into space - they also provide the spacecraft, components, software and ground systems needed to make missions in orbit successful. They are already delivering this for commercial and government customers.
- The data and services: This is where the long-term value lies. By controlling both the launch and spacecraft domains, Rocket Lab can develop and deliver space capabilities like constellations without the delays and costs others face. This positions them for long-term, recurring revenue and creates additional value for shareholders.
In short, Rocket Lab's vision goes far beyond just launching rockets - they are building the infrastructure for an entire space ecosystem. This broader vision is critical to understanding their successes now and in the future.
7.the long-term potential of $RKLB (-0,55%)
I realize that the previous explanation does not provide enough detail for some to understand the true potential of $RKLB.
Essentially, there are many applications and business models that are enabled by the deployment and operation of spacecraft or satellite constellations. Once $RKLB finalizes its end-to-end space ecosystem, it will be able to pursue any opportunity it chooses.
At first I didn't fully understand this, but these include services such as satellites that provide imagery and data collection for agriculture, environmental monitoring, disaster management and defense; satellite communications with advances in real-time connectivity for IoT devices, autonomous vehicles and global networks; the development of in-orbit manufacturing for specialized materials that can only be produced in a zero-gravity environment (such as high-precision optics, pharmaceuticals or even semiconductors); outsourcing data storage or computing power to satellites in space (which has multiple benefits); space debris management services, a growing problem as the sector evolves; as well as many other potential applications.
I didn't realize how huge the potential of the space economy is until I learned of some of the real-world applications it can have. I guess that's why it's becoming a trillion dollar industry.
A good insight report on this is "Space: The $1.8 Trillion Opportunity for Global Economic Growth" by WEF and McKinsey & Co.
8.when will Rocket Lab become profitable?
Adam Spice, (Chief Financial Officer CFO of $RKLB), on when the company will generate sustainable positive cash flow:
"I've been pointing people towards two quarters after the first Neutron launch as the point where we turn that corner on a more permanent basis, given the growth of the rest of the business and how the P&L will look once we've completed that first R&D test launch and established most of the infrastructure to scale Neutron."
Translated:
"I've always told people that two quarters after the first Neutron launch will be the point where we turn that corner on a more permanent basis, given the growth of the rest of the business and how the P&L will look once we've completed that first R&D test launch and established most of the infrastructure to scale Neutron."
That means around the first quarter of 2026, better than expected.
It is important to note that Rocket Lab would already be profitable if the company did not invest money in the development of Neutron - based solely on Electron and the Space Systems segment!
9. comparison with the competition
Another very important advantage that $RKLB has is the ability to develop impressive rockets that are much more cost-effective than those of its competitors.
Peter Beck explains 👇🏻
Rocket Lab's ability to develop rockets like Neutron at a significantly lower price than competitors is due to their unique approach and deep experience. They excel in cost efficiency, thanks to their development process that aims to identify and fix problems quickly at the component level, rather than waiting for these issues to emerge in more complex systems. This means they can solve problems early, avoiding costly rework later on.
Their experience plays a critical role, as demonstrated by Rocket Lab's successful Electron rocket program. Rocket Lab has perfected its methods over time, allowing them to build fully operational engines like the Archimedes without relying heavily on small-scale preliminary testing. This approach speeds up development and lowers costs as the engines are tested in their final form rather than through prototypes.
Essentially, Rocket Lab's strategy of rapid iteration, combined with its expertise and testing procedures, allows it to develop and launch rockets faster and more cost-effectively than many of its competitors, be they incumbents or new entrants.
9.Valuation
This might be a bit controversial, but let me explain my thesis. ⬇️
The space industry today could be likened to the early days of the internet and is at a crucial inflection point in its development.
Overall, the global space economy is expected to reach a value of 1.8 trillion dollars by 2035, driven by growing demand from both commercial companies and government agencies.
$RKLB is at the forefront, providing essential launch services and developing technologies that could significantly advance space travel and commercialization.
The last private valuation (dated 03/12/2024) of SpaceX was $350 billion, approximately 60 times the current market capitalization of $RKLB.
While SpaceX is currently an established company and the market leader in the sector, the gap will narrow as Neutron's development progresses.
$RKLB has several competitive advantages and proven expertise that position the company as a strong contender for industry leadership. As Peter Beck, said, "Sometimes you can start at the back, but that doesn't mean you finish last."
I usually avoid investing in companies with negative cash flow because their valuation is difficult. This is especially true for $RKLB, given the sales volatility in the short term. Nevertheless, I am optimistic about Rocket Lab's impressive long-term potential. If the company continues on the right path, it could be worth tens of billions of dollars in a few years.
All in all, I understand that $RKLB may seem too expensive for number crunchers based on current numbers and profitability. Nonetheless, I believe the narrative makes the company a compelling opportunity in a sector that has great potential in the coming decades.
Looking back on $RKLB's impressive progress, it is clear that Peter Beck's leadership has been critical to the company's success.
His vision and dedication were key to taking Rocket Lab from a small startup to a major player in the space industry.
That is why he is widely recognized as both a brilliant engineer and a visionary leader in the industry.
Peter Beck's journey from young rocket enthusiast to founder of Rocket Lab shows his dedication and creativity. His hands-on approach and drive to make space more accessible has been at the heart of the company's growth. He has not only guided Rocket Lab through challenges, but also prepared it for future success.
This team has already more than proven its quality when it comes to solving problems and driving new technologies forward. I am confident that Rocket Lab will continue to grow and make a big impact in the space.
$RKLB (-0,55%)
#SpaceX
