Wild ride: Why Rocket Lab shares shot up for fourth day straight

Rocket Lab shares were up 6.07 per cent today to US$15.38 in late trading – a new high since the Kiwi-American company debuted on the Nasdaq on August 25.

“Last week, Investors saw a nice uptick following the news of Rocket Lab move to produce key satellite components,” Hatch general manager Kristen Lunman told the Herald.

“Shares have risen again n anticipation of their earnings report [expected after the Nasdaq closes at 8am this morning NZT]. For the first time as a public company, we’ll hear from Rocket Lab on how its revenue has grown, and if the company might be closing in profitability – or why it’s losing so much money and what we can expect for its growth trajectory.”

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The level of detail will be unprecedented, given Rocket Lab had fewer disclosure obligations than an IPO as it essentially reverse-listed on the Nasdaq through its merger with SPAC company Vector Acquisitions.

Rocket Lab, which says it will be in the red for several more years, made a net loss of US$34m on revenue of US$48.4m in its 2019 financial year. Then it went backwards as the pandemic hit its launch schedule, losing US$55.0m on US$35.2m turnover.

The trend continued in the first three months of FY2021, with the company making a net loss of US$15.9m on US$18.2m revenue.

And Rocket Lab’s activities continue to be muted by events. Its Launch Complex 2 at Nasa’s Wallops Island facility is completed but not yet operational as the US space agency takes months to certify flight termination processes.

And it can’t use Launch Complex 1 at Mahia until its assembly plant and Mission Control in Auckland come out of level 4 lockdown.

With the numbers delivered this morning are likely to be muted, Lundman says the focus will be on guidance.

“Forward-looking is what we’re looking for. Investors are very good at ignoring Covid disruptions, we’ve found.”

In its pre-listing SEC filing, Rocket Lab said it has contracts for 15 additional Electron launches for this year and beyond, valued at US$127 million in launch and space systems revenue.

Today, investors will be looking for any update on that figure.

“Now that Rocket Lab is officially public, investors are getting a good look at the company’s performance and plans for long term growth,” Stake CEO Matt Leibowitz said.

“Investors around the world are getting excited about the opportunities for the space sector as a whole, they see Rocket Lab as a key player in the new space race.”

Shareholders will also be looking for more detail on how Rocket Lab will spend the US$750m in new funds it raised with its listing. Beck has previously said the funds will be used, in part, for developing the larger, crew-capable Neutron rocket, scheduled for its first launch in 2024 and expanding his companies space systems (satellite and spacecraft).

Speaking to the Herald last week, Beck said space system growth could come via acquisitions. The sector is forecast to account for around 40 per cent of Rocket Lab’s revenue by FY2027 – a point by which the company says it will be making operating earnings of US$505m on US$1.57b revenue.

Fourth-straight day of gains

After four straight sessions of gains, the firm – which listed at US$11.50 – now has a market cap of US$6.9 billion.

Founder Peter Beck’s54.53 million shares are now worth some US$839m ($1.2 billion).

Its recent bull run has also seen Rocket Lab become the most valuable publicly-listed pure-play space transportation company, passing Virgin Galactic – whose shares have fallen by a third to US$6.3b over the past month.Elon Musk’s privately-held SpaceX – with a private equity valuation of some US$74b – is still the top dog overall by some margin.

Astra’s failure – and a second very public fail around the same time by another rival, Firefly with is Alpha – underlined that while there are dozens of space transportation startups, only SpaceX and Rocket Lab have managed to get a commercial private launch service off the ground (Virgin Orbit is the small satellite-focused sister company of Virgin Galactic. It has so far staged two test flight, releasing a smaller craft taking to high altitude by a 747).

Shares in Astra fell another 12 per cent today, taking its market cap down to US$3.2b.

Rocket Lab’s move into space stock pole position has also been helped by the Wall Street Journal. Last week, the paper told readers to look past the glamour of space tourism to satellite launchers, concluding “Rocket Lab is probably the safest bet” – both because of its proven performance launching more than 100 satellites, and its attractive ebitda to enterprise value multiple.

Beck said earlier that he would not be hitting refresh on Nasdaq.com. “I’m not even watching it,” he said. “At the end of the day, we’re in this for the long term.”

But around 7000 New Zealanders invested in Rocket Lab’s IPO via platforms including Hatch, Sharesies and Stake, possibly are keeping a closer eye on their investment.

And the surge over the past three trading days has been good news for around 3000 Hatch customers – an increase of 1000 since the listing, according to Lunman.

The latest surge is also potentially good news for Sir Stephen Tindall’s K1W1, ACC’s investment arm and early Rocket Lab backer Mark Rocket, all of whom had holdings somewhere below the 5 per cent threshold as Rocket Lab listed on the Nasdaq (none have so far commented on whether they have sold any of their stock).

And it’s also a boon for more than 100 past and present Rocket Lab staff who had been granted share bonuses worth more than $1m at last Thursday’s listing price (which the stock is now above), and more than 180 granted stock now worth more than $500,000.

https://www.youtube.com/embed//NisZvIs4SKk

Reasons for blastoff

Why the surge over the past two days?

Investors – including at least 1000 more Kiwis who have hitched a ride over the past week, since Rocket Lab first listed August 25 – have reacted positively to Rocket Lab announcing it will expand its spacecraft production, and a spectacular failed launch by Astra earlier this week. And this morning another rival went down in flames – literally – as Firefly’s Alpha exploded soon after take-off (see clip below).

Expanding satellite production

Lunman put Rocket Lab’s initial rise down to an announcement that the firm is expanding its space systems division.

That is, making parts for satellites and its own Photon spacecraft.

Beck said on Thursday that construction is under way on a new plant in Auckland, due to open in the fourth quarter. It will manufacture 2000 reaction wheels per year -critical attitude and stability control systems on satellites.

Rocket Lab has leased space in buildings immediately adjacent to its existing mission control and assembly plant in Mt Wellington.

Although Rocket Lab bought Canada’s Sinclair Interplanetary to boost its house-brand satellite business, “They’re reliant on all these really micro, unique engineering companies to deliver the value chain of components for a satellite, which can be expensive and time-consuming; they often are these bespoke manufacturing outfits.”

By expanding its in-house satellite manufacturing operation, Rocket Lab was becoming closer to Beck’s vision to be an end-to-end space transportation company.

“They will own more of the value chain,” Lunman said.

“It’s also about speed and scale, given they’re in a space race situation with the likes of Elon Musk and others.”

She added, “Many who are still sitting on the sidelines who want to see these companies move aggressively. Anything that solves for speed, and scale with space is seen as a good thing at this point.”

Lunman said the satellite component manufacturing news had sparked a lot of positive comments in investor chatrooms, as well as coverage on high-profile US technology investment site TechCrunch.

Stake CEO Matt Leibowitz said, “We saw trade volume on Rocket Lab rise 92 per cent on the back of the news it was investing in new factories.

“The activity has been driven by news that suggests Rocket Lab is gearing up for significant growth.While Rocket Lab may never utilise the full capacity of its new factory, the fact that it’s investing in having this capacity for growth in the long term has investors really pumped.”

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While space systems have so far only accounted for a tiny fraction of Rocket Lab’s revenue, it has three marquee interplanetary missions on the way. Later this year, a Rocket Lab Photon will ferry a Nasa satellite into lunar orbit. A privately funded mission will see a Photon sent to Venus in 2023. And Rocket Lab has won a Nasa contract to design and build two Photons that will go into orbit around Mars in 2024 to study the Red Planet’s atmosphere.

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