RKLB: Publically Traded SpaceX Competitor at a Steep Discount

Of the two Elon Musk’s largest ventures, Tesla and SpaceX, only Tesla (NASDAQ: $TSLA) is a publicly traded company. For investors seeking an alternative small satellite market exposure, there is an aerospace stock worth considering.

Based in Long Beach, California, Rocket Lab (NASDAQ: $RKLB) provides its own solution for manufacturing and launching small satellites into orbit. Depending on client needs, the company can launch its lightweight Electron rockets from two sites, one in Mahia, New Zealand, and one in Wallops Island, Virginia. 

Thanks to a bilateral treaty between the US and NZ, the company has exclusive rights over the launch site, allowing Rocket Lab to conduct at least 120 launches annually.

Rocket Lab has completed launches for the National Reconnaissance Office, DARPA, US Air Force Space Command, geospatial intel provider BlackSky, microsatellite turn-key provider Astro Digital, and maritime surveillance company Unseenlabs among others.

So far, Rocket Lab has made 36 successful launches with four failures, giving it an 88.89% success rate as it deployed over 100 satellites. Comparatively, this is under the performance of SpaceX, with 269 launches at 99.3% success rate. 

However, there are other competitive differences to consider. Ones that make Rocket Lab’s fair value estimate at an 83.8% discount.

Understanding the Cost of Launching Orbital Rockets

When it comes to sending communication electronics into Earth’s orbit, it’s all about mass cost-efficiency. SpaceX and Rocket Lab have adopted two distinct approaches. Rocket Lab employs lightweight Electron rockets weighing 12,500 kg, with a payload capacity of 300kg. SpaceX employs medium-sized Falcon 9 rockets weighing 549,054 kg, with a payload capacity of 22,800 kg.

This makes for drastically costlier launches for SpaceX, at $67 million per launch. On the other hand, Rocket Lab can afford to charge around $5 million per Electron launch. SpaceX turns out cheaper per kilogram of payload, at $2,600/kg, while Rocket Lab has to charge around $23,100/kg.

Both companies have vastly improved NASA’s retired space shuttles, which had a $65,000 per pound of payload price tag in 2021. Rocket Lab’s Electron launch costs per payload are positioned in a higher tier, with Falcon 9 and Falcon Heavy dominating cost-efficiency.

Nonetheless, Rocket Lab holds a promising potential as a SpaceX competitor in the small satellite launch arena. The fact that it is publicly listed opens up more capital venues than relying on government contracts.

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Rocket Lab’s Neutron Upgrade 

In March 2021, Rocket Lab announced its medium-sized solution in Neutron rockets, comparable to Falcon 9 with a 15,000 kg payload capacity. Instead of relying on floating platform landings, the new rockets would return to the launch site. 

Neutron launches are set from NASA’s Wallops Flight Facility on the eastern coast of Virginia, but the first launch is not planned before 2024. Rocket Lab should level the payload cost playing field if all goes well with SpaceX.

In the meantime, Rocket Lab has a proven track record in utilizing automation and 3D printing for its Electron manufacturing process. It is taking advantage of carbon composite structure and 3D-printed Rutherford engines.

In 2022, the bulk of Rocket Lab’s revenue, at $150.3 million, came from vertical integration. Compared to the previous year, it is a 535% revenue uptick.

Rocket Lab’s Vertical Integration

Rocket Lab’s space systems segment is a complete end-to-end service, from design and manufacturing to launching and operating deployed spacecraft. The launch segment made up $60.7 million, a 56% increase from 2021. In Q1 2023, the company grew by 35% compared to Q1 ‘22, generating $54.9 million in revenue. 

In Q2 2023, Rocket Lab completed its first HASTE launch mission for Leidos. Under the Multi-Service Advanced Capability Hypersonic Test Bed (MACH-TB) program, this launch represents a milestone for the company as it takes to hypersonic and suborbital systems development. Leidos contracted Rocket Lab for four HAST missions in the next two years.

For Q3 2023, Rocket Lab expects even greater revenue, ranging from $73 to $77 million, with an estimated net income of $0.5 million. Non-GAAP gross margin is forecasted to be between 28% and 30%, a relatively high profitability margin that indicates a sustainable business model.

Considering the continued interest of government agencies and commercial enterprises, Rocket Lab appears to have all the ingredients to catch up with SpaceX. Accordingly, Nasdaq gives RKLB shares a “strong buy” recommendation, placing the average price target at $8.96, with a low estimate at $5 against the current price of $4.47.

Do you think SpaceX will eventually go public as micro-satellite competition heats up? Let us know in the comments below.