Jan 28, 2023
A Good Week for Rocket Lab, Less So for Its Share Price
(Bloomberg) -- Rocket Lab Inc. launched its first rocket from US soil this week, delivering a payload of small satellites to orbit for a paying customer. It was a moment of triumph for the Long Beach, California-based startup, expanding its reach from an existing launch site in New Zealand to its new facility in Virginia. And the success augurs well for a fledgling industry that includes a bevy of other startups.
For a brief flicker of a moment following Tuesday evening’s launch, investors seemed to sit up and take note. Shares jumped as much as 11% in early Wednesday trading after Stifel Financial Corp. analyst Erik Rasmussen — with a buy rating on the stock — said the launch marks an “important milestone” and puts Rocket Lab on a trajectory to meet the growing demand for low-earth orbit satellite launches.
In short order, though, that enthusiasm faded as shares returned to last year’s pattern of downward glide. Rocket Lab shares fell both Wednesday and Thursday following the mission, before posting a gain of 1.2% to close at $4.94 on Friday.
Credit Suisse analyst Scott Deuschle summed up investor skepticism. “There’s a lot of exaggeration about what the market opportunity is here,” he said in an interview. “The reason I don’t get excited because they launched a rocket is because they don’t generate positive gross profit on a launch.”
Even so, Tuesday’s launch was welcome news for not just Rocket Lab but Virgin Orbit Holdings Inc. and Astra Space Inc., all of which are counting on turning the corner in 2023 after a year of delays and setbacks. This may also be the year they catch the attention of more investors who have put their faith and cash in SpaceX, which dominates the commercial launch market. All three saw their shares crushed in 2022 as operational woes were exacerbated by the Federal Reserve aggressively raising rates, hurting high-multiple technology names. Investors also fell out of love with companies that went public via merger with blank-check companies. By comparison, closely held SpaceX continued to woo investors last year, with its valuation rising to around $140 billion.
Rocket Lab’s Electron rocket took off from the company’s new launchpad on Wallops Island, Virginia. The company is targeting between four and six more launches from Virginia this year, Chief Executive Officer Peter Beck said in an interview with Bloomberg Television on Wednesday.
Deuschle is an outlying bear on Rocket Lab, with a $3 price target and an underperform rating. Of the eight analysts tracked by Bloomberg that cover the stock, six hold the equivalent of a buy rating. The average analyst 12-month price target is $9.86, more than double where Rocket Lab currently trades, but less than half where it was in September 2021 after listing.
“The market has been indiscriminate in the pull back of the Space-SPAC companies regardless of execution,” Morgan Stanley’s Kristine Liwag said. Liwag has the equivalent of a buy rating on Rocket Lab and sees a healthy market for the startup’s services. “Demand continues in 2023 and capacity hasn’t really increased significantly.”
The difference between Rocket Lab and its peers, investors say, is its track record in pulling off successful missions. There were nine launches in 2022, a new annual record for its Electron booster and up from four missions in 2021. Until now, all 32 prior missions have been conducted from a launchpad on the east coast of New Zealand. By comparison, Virgin Orbit has only launched successfully four times and its first attempt to launch from the UK — the sixth attempt overall — ended in failure earlier this month.
“Rocket Lab is one of the few space SPACs that have proven to be successful, with a working product and demonstrated growth opportunity,” said Chad Anderson, a managing partner at Space Capital. Anderson’s firm, with $100 million under management, was an early stage investor in Rocket Labs.
The company is still a minnow compared to Space Exploration Technologies Corp., the formal name of SpaceX. Elon Musk’s firm carried out 61 orbital missions in 2022, with more than two-thirds of those launching from the US. Most of those missions, though, were to put SpaceX’s own Starlink satellites into orbit. A far smaller proportion — just four last year — were so-called “ride share” payloads with satellites from paying customers, similar to those that Rocket Lab could offer.
Rocket Lab’s Electron rocket is capable of carrying just 300 kilograms (661 pounds) of payload to orbit at a cost of about $7 million per launch, making it suitable for only smaller satellites. By comparison, SpaceX’s Falcon 9 can carry 22,800 kilograms at a reported cost of $65 million a launch, a better dollar per kilo ratio. Rocket Lab’s next generation rocket, the Neutron, is designed to lift 13,000 kilograms into orbit. The Neutron will be ready to launch starting in 2024, Beck said.
Rocket Lab is also trying to emulate SpaceX with a larger, self-landing reusable booster. Longer-term, the company also hopes to make the Electron reusable, with a system employing a helicopter to catch its booster midair as it falls down to earth, an operation it has yet to successfully test. “There is a real capacity crunch in the 2025 to 2027 time frame on medium-size launch,” Beck said in his interview with Blomberg TV. “That’s why we are developing the Neutron launch vehicle.”
For the time being Rocket Lab owns its niche, albeit an unprofitable one. Astra said in August it was ceasing work on its Rocket 3.3 system and is shifting strategy. Closely held ABL Space Systems recently saw its RS1 rocket crash back down to earth just 11 seconds into its debut orbital mission from a spaceport in Alaska. A fire in the RS1’s avionics system may be to blame.
At least one analyst sees a path to success for stragglers in the market. The war in Ukraine shed a light on how few rockets there are available at short notice to get a wide range of satellites in to orbit, according to Deutsche Bank’s Edison Yu, who has a buy rating on Rocket Lab and is the only analyst tracked by Bloomberg covering Astra.
“What happens when we realize there are not enough rockets to take them up,” said Yu. “I think you're going to start seeing a lot of pricing power.”
--With assistance from Loren Grush and Caroline Hyde.
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