Rocket Lab (RKLB +4.41%) just can't stop winning -- big space contracts, that is.
Earlier this week we discussed Rocket Lab's winning its largest-ever contract to put a satellite constellation in orbit, 25 satellites carried aboard five Electron rockets, to help France's Kineis set up an Internet of Things satellite constellation around the globe. At an estimated price of $7.5 million per launch (Rocket Lab didn't disclose the actual price), the Kineis award should add about $37.5 million to Rocket Lab's near-term revenues.
And now Rocket Lab has won a contract twice as large.
NASDAQ: RKLB
Key Data Points
Building the world's (second) biggest synthetic aperture radar constellation
On Monday, Rocket Lab announced that Japanese satellite company Synspective has awarded it its largest-ever contract as measured by rockets launched -- 10 launches to put 10 Synspective synthetic aperture radar (SAR) satellites in orbit. This comes on top of the four Synspective satellites that Rocket Lab has already launched, and two more launches contracted to take place later this year -- so 16 launches in all.
Finland's Iceye currently boasts the world's largest constellation of SAR satellites, with more than 30 sats launched to date, 15 more on the way, and an ultimate goal of 48. Synspective isn't that big yet, but it's doing its best to claim the No. 2 slot and overtake current No. 2 Capella (which plans a 36-satellite constellation). Superior in some ways to ordinary Earth-observation satellites, SAR uses radar waves to penetrate cloud cover, giving satellites a sort of X-ray vision that can surveil targets on the ground in any weather, day or night.
Synspective says its satellites are used for multiple reasons over other kinds of Earth observation satellites, including detecting conditions in terrestrial infrastructure that might need repair, monitoring crop growth, and detecting illegal logging and fishing operations that might try to hide their activities under clouds or dark of night. For similar reasons, the technology has also become increasingly important in military applications.
Importantly, both Synspective and Capella rank among Rocket Lab's customers already, whereas Iceye has historically bundled its launches aboard SpaceX Falcon 9 rockets on low-cost Transporter missions. Capella has at least two more launches scheduled with Rocket Lab, but may be rethinking its relationship after an anomaly on a Rocket Lab launch last year cost Capella one of its satellites. If that happens and Capella decamps for another launch provider, Rocket Lab's Synspective business would become even more important to the rocket company.
The Synspective deal also serves to raise Rocket Lab's profile in Japan, "one of the fastest-growing [space markets] globally," according to Rocket Lab CEO Sir Peter Beck. The proximity of Rocket Lab's New Zealand launch sites serve as another plus to winning future Japanese launch contracts.
What it means for investors
So there's an obvious growth element to this contract for Rocket Lab as it adds $75 million in revenue, and also opens doors to winning even further work in Japan. Perhaps even more important to investors in the stock, the Synspective contract allays concerns that there's a ceiling on demand for small rockets -- or that SpaceX and its low-cost "Transporter" missions will hoover up all the small satellite work all around the world, such that companies like Rocket Lab won't be able to find any work.
The $75 million, spread over a three-year period from 2025 to 2027 (so roughly $25 million per year) represents more than one-third of the launch revenue Rocket Lab recorded last year -- or looked at from a growth perspective, implies about 35% annual revenue growth from Rocket Lab's launch services division. And this is all from winning just one contract. Seems to me Rocket Lab is finding plenty of work to keep itself busy, SpaceX competition notwithstanding.
Granted, there's still the nagging issue of this work not yet being profitable. At 11% gross profit margins, Rocket Lab's launch services division isn't anywhere near profitable enough (yet) to overcome the company's high operating costs, which last year consumed 86.5% of all revenues collected, according to data from S&P Global Market Intelligence.
Then again, launch services were downright unprofitable for Rocket Lab as recently as last year. As revenues rise, it seems we're starting to see Rocket Lab reap the benefits of the growing scale of its operations. The inflection point at which Rocket Lab finally turns net-profitable shouldn't be too much farther off.
