Rocket Lab ($VACQ - $RKLB) Breakdown
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Compound interest is the eighth wonder of the world.” - Albert Einstein
To all the Time Investors,
We are all aware of the amazing accomplishments that SpaceX continues to deliver in transforming the new space economy. While there is a key leader in the $400B markets, a series of players are entering the space after years of development regarding their space technology assets and services. Today we will focus on Rocket Lab, one of the only two U.S. commercial companies delivering successful access to Earth’s orbit.
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📖What is Rocket Lab?
Rocket Lab is a pure-play space company that offers “end-to-end” solutions that provide rockets, satellites, and assets supporting space infrastructure. They are one of the two companies [you can certainly guess the other one] that have delivered consistent launch services to orbit commercially in the U.S.
The $368B space economy is estimated to grow to $1T by 2040. From the company’s perspective, they are in the position to operate in a TAM of $62B (16.8% market share). The TAM is broken out into the following categories:
Small satellite constellations will drive 83% of the demand for launches by 2028
Space Systems: $20B
Growth will be present in small satellite constellations for commercial Earth observations and telecommunication applications
Defense focuses on building out space infrastructure
Space Applications: $32B
Demand to connect the entire world and data management and analytics
👨💻What are the Strategic Resources?
Product Portfolio: In 6 years the company has achieved 18 launches to space, 97 satellites deployed to orbit, 3 launch pads built, and 2 mission control centers. Now let us go deep into the technology assets propelling Rocket Lab to potential success.
Electron Rocket: the reusable carbon composite rocket is powered by the world’s first 3D printed rocket engine and first electric pump-fed rocket
16 successful orbital launches, deployed 97 satellites, across 3 launch pads has 132 launch opportunities a year, delivered 180 3D printed engines to space, and ~600-pound payload capacity
Kick stage allows for precision and unique orbits of satellites
Launch Infrastructure: Launch Complex one is located in New Zealand, and Launch Complex two is located in Virginia, U.S.
132 launch slots annually, the world’s private licensed orbital launch site, and the ability for 24-hr launch regarding defense and constellation needs
Neutron Rocket: this is a medium-sized rocket with an 8-ton load capacity (~220 satellites per launch)
Tailored for defense and constellation satellite launches. The rocket is also capable of human space flight and crew resupply for the international space station
Photon: In-orbit satellite (spacecraft bus) that delivers assistance for specific missions for payloads, power, propulsion, and communications. The company has a low earth orbit and interplanetary design.
Satellite Components: The company has secured its supply chain of satellites and spacecraft with components like reaction wheels and star trackers. They incorporate these components in their own products and sell them to other space companies.
In building out the Neutron Rocket the company has invested $200M to meet the demand for constellation satellites. The company is also planning on building the factory for Neutron close to the launch site to minimize issues with transporting the vehicle. Fundamentally to protect its resources the company has 6 registered patents in Aircraft, Aviation, and Cosmonautics categories.
Customer Landscape + Partnerships:
The company has conducted 18 missions for more than 20 organizations. 50% of its customer base is commercial and the rest is divided between civil at 20% and defense at 30%.
NASA (2 missions), DARPA (1 mission), Air Force + Space Force (2 missions), Planet (3 missions), Black Sky (2 missions), Spaceflight (4 missions), Spire (2 missions) *Competitors rely on Rocket Lab for the launch of their satellites as noted above
In 2020, the company acquired Sinclair Interplanetary which manufactures small sat components
Business Model and Growth Strategies:
The company generates its revenue specifically from contracts awarded based on the launch missions. Because of their small reusable rockets, they can deliver cost-effective launches for small payloads. CNBC reported that the company’s Electron rockets are priced at $7 million per launch.
2020 A Revenue: $35M | 2025E Revenue: $749M – 115% CAGR
The company is expected to hit $69M this year and has $2.2B in the pipeline
2020A EBITDA: -$36M (-102%) | 2025E EBITDA: $168M (22%)
The company is expected to become profitable by 2023
2020A FCF: $-45M | 2025E FCF: $149M (88% of EBITDA)
Cash flow positive by 2024
Enterprise Value: $4.1B
82% company ownership for existing Rocket Lab shareholders post-merger
The company plans to continue accelerating growth through the following initiatives:
Merger: The company will go public through a SPAC with Vector Acquisition Corp. The company will be fueled with $745M in cash to continue building the Neutron Rocket and pursue supply chain acquisitions
Technology: The demand for constellation satellites is expanding and the company needs to pursue the completion of the Neutron Rocket which will have a capacity of ~220 satellites per launch
Business Channel: The company will heavily invest in expanding their space system capabilities utilizing personal satellites for services required by companies
💪Key Strategic Moats
Technology: The company is pioneering 3D technology in the production of its rockets. They have built the world’s first 3D printed engine rocket that can be reused and to date has conducted 18 successful missions. In addition, they also provide satellite technology and components that are capable of low earth orbit and interplanetary planetary applications.
Vertical Integration: The company controls 90% of its production from rockets, satellites, space components, and launch sites. They want to ensure that the company has no friction when it comes to the supply chain process. This allows the company to achieve efficient unit economics and ensure low-cost launches in the market.
Team Leadership: The company is lead by veterans in space with experience from SpaceX, NASA, Air Force, Intel, and Broadcom. They are equipped with a team that understands scalability, space technology, and operational effectiveness.
⚠️Key Critical Risks
Competition: The company’s key competitor is SpaceX who can carry heavier payloads, dominates the satellite constellation market and poses similar reusable rocket technology. Additionally, with an attraction towards the “new space economy”, new players such as Astra, Virgin Orbit, and Relativity Space are entering the medium-lift rockets to feed the rising demand for constellation satellites.
Neutron Rocket Production: The expected launch for Neutron is 2024. The company will have to re-design the rocket to ensure that its first stage booster lands vertically in an ocean platform like SpaceX. This is different from how they currently retrieve the Electron Rocket. This can create challenges as rigorous testing is needed and with SpaceX being the only one to achieve this accomplishment.
Supply Chain: The space supply chain is very fragile. Any delays from customers that are building satellites to be launched will impact revenue for Rocket Lab.
🧬Team DNA and Vision
Peter Beck, CEO, Founder, Chief Engineer – Peter is a visionary founder and engineer whose passion for building rockets stemmed from childhood. Prior he worked at Industrial Research focusing on smart materials, composites, and superconductors.
Adam Spice, CFO, - Prior, Adam served as CFO of MaxLinear, helping scale the business from $70M to $421M and has 20 years of Finance experience. He will solidify the company’s ambition for growth and acquisitions.
Vector Capital Team: The company has a 25-year track record with $3B of capital under management, 100+ tech company acquisitions.
Team Composition: The company is 530 employees strong with approximately ~200 engineers (40%). The executive team and the engineering team are built with talent hailing from companies like SpaceX and NASA.
🤯Key Insights for Time Investors:
Tess Hatch, Partner at Bessemer Ventures, highlights that when it comes to space companies there are two key indicators that identify success: launch vehicles and satellites. As an investor, you want to look at the number of launches and the number of satellites that it deployed to space. When it comes to satellites you want to look at how many assets are in orbit and the type of sensors that are equipped in the satellites.
SpaceX is the first U.S. commercial company to lead the number of launches and satellite deployments in space. The second one to follow is Rocket Lab with 18 launches to space and 97 satellites deployed in orbit. Rocket Lab has not only proven technology, but they have backed it up with execution and efficiency.
The company promises, launch on-demand services, frequent launches, tailored orbits, and the ability for the customer to control their schedule. They are separating themselves from the ride-sharing concept and as result, the customer can expect a $7M price tag.
Unlike some of the other space SPACs, the company is generating revenue and has $2.2B in the pipeline from expected missions.
Awarded the NASA capstone mission to the moon in 2021 to support a moon-orbiting outpost.
Private mission to Venus to search for life
Mission to Mars to deliver a satellite that studies the atmosphere
Rocket Lab also sees the demand for small satellites. To meet this, they are planning to create a mid-sized rocket with the capability to carry 220 satellites to space. This puts in a similar competitive pace with SpaceX.
Overall, Rocket Lab has the infrastructure to conduct small, more frequent, and economically viable launches. The company is aiming to fully integrate across its entire supply chain and beyond launches offer a full package to customers involving satellites (currently the own 1 orbit) and other space components.
However, as an investor, you should also understand the risks regarding the difficulty in operating in a high capital-intensive industry. The design of the Neutron rocket will be from scratch to ensure the vertical landing of the boosters like SpaceX. Currently, the company recovers its rockets from the sky using parachutes and helicopters to snatch them.
The space supply chain is fragile and as result full of delays from reliable customers with substantial contracts. This can put financial pressure on Rocket Lab especially with the regulatory obligations that come from being a public company.
The space market is also attracting a series of other companies that will be operating in the small to mid-size launch sector. Astra is one that comes to mind in which they have been marketing a “Model-T” type production of rockets and launch pads that could be produced within months.
Stay incurably curious!
-Igli G. Laçi
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Additional resources and sources I used for all the Time Investors (Leeeetttsss Gooooooo!!!)
Rocket Lab Venture Capital Investment in Space - Seeking Alpha
Rocket Lab could be SpaceX biggest rival - MIT Technology Review
Disclaimer: The companies mentioned in my newsletter are not investment advice. This is simply information researched to help you learn about industries and various public companies