Sarah Travers
The space economy is on the brink of a significant transformation, fueled by groundbreaking technological advancements. Recently, SpaceX achieved a major milestone by successfully launching and landing its reusable Starship rocket. This achievement positions Starship for future human missions to the Moon and Mars. As the largest rocket ever developed, it will have the capability to carry commercial payloads between 150 and 250 tons, along with transporting over 100 people on interplanetary journeys.
While SpaceX leads the charge in redefining space travel, investors face a challenge—it remains a private company, unavailable on the stock market. However, Rocket Lab offers a publicly traded opportunity, steadily positioning itself as a key competitor within the space economy. This company has made substantial progress in its efforts to rival SpaceX, setting itself apart with nimble operations and specialized rockets designed for smaller missions.
Rocket Lab’s Strategic Growth with Electron
Rocket Lab initially entered the commercial space market with its Electron rocket, targeting smaller payloads that Falcon 9, SpaceX’s workhorse, overlooks. The Electron rocket quickly gained traction, securing contracts with government clients and commercial satellite providers. Its launch frequency has grown faster in its early years than the Falcon 9, allowing Rocket Lab to carve out a niche in the rapidly expanding space industry.
In the second quarter of 2024, Rocket Lab signed 17 new Electron launch contracts worth $141 million. Its contract backlog now exceeds $1 billion, far surpassing the company’s trailing annual revenue of $327 million. This large backlog provides a stable foundation, offering the company predictability and allowing it to reinvest confidently into future projects and developments.
Expanding with the Neutron Rocket and Space Systems
Rocket Lab’s ambitions extend beyond the Electron rocket. The company is developing a larger rocket called the Neutron, designed to handle over 10 times the payload capacity of the Electron. With these increased capabilities, Rocket Lab aims to serve a broader range of customers, enhancing revenue potential with each launch.
To build a more comprehensive presence in the space economy, Rocket Lab has also expanded into space systems. This includes developing satellite vehicles and producing solar cells for electricity generation in orbit. These new ventures reflect Rocket Lab’s vision of becoming a vertically integrated space company, offering services beyond just launching rockets.
Future Plans for Space Data and Internet Services
Rocket Lab’s long-term plans involve a third business model pillar—space data and services. While details remain limited, the company intends to explore opportunities like selling data from satellites or potentially providing satellite internet services. If successful, this move could align Rocket Lab with industry initiatives such as Amazon’s Project Kuiper, diversifying its revenue streams even further.
Opportunities and Risks for Investors
Despite Rocket Lab’s impressive growth trajectory, it is still unprofitable, with an annual free cash flow loss of approximately $150 million. Profitability may not be achievable until the Neutron rocket becomes fully operational, adding an element of risk to the company’s financial outlook. The rocket launch business remains inherently challenging, with technical risks that could affect future growth.
However, Rocket Lab’s market capitalization of $4.94 billion presents a unique opportunity, especially when compared to SpaceX’s estimated valuation of $200 billion. If Rocket Lab can execute its strategy effectively, it could generate over $10 billion in annual revenue within the next decade. Even this would represent just a small fraction of the estimated $500 billion space economy, highlighting the immense growth potential that lies ahead.
A Promising Long-Term Investment
With a growing launch business, diversified services, and future plans for data-driven solutions, Rocket Lab offers significant potential for investors who believe in the future of the space economy. While risks remain, the company’s progress and ambitions position it as a compelling long-term investment. Investors looking for exposure to the space economy may find Rocket Lab to be a promising buy-and-hold opportunity in the evolving race for commercial space dominance.
