Rocket Lab Just Won Its Biggest Contract Ever
Key Points
Department of Defense awards Rocket Lab $190 million under Kratos-led hypersonics contract.
Rocket Lab will launch 20 HASTE suborbital rocket missions at a cost of $9.5 million each.
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I should probably send Rocket Lab (NASDAQ: RKLB) a thank-you note at some point for making headlines about its contract wins so easy to write. Some examples:
"Just in Time for 2024, Rocket Lab Won Its Biggest Contract Ever."
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"Just in Time for 2026, Rocket Lab Won Its Biggest Contract Ever."
The first came after announcing a $515 million contract to build data relay satellites for a U.S. Space Force missile detection system in 2023. The second was about $816 million more to build spy satellites for the same system a year later.
Now, Rocket Lab has just announced yet another biggest-ever contract win. This time, though, Rocket Lab isn't building satellites. It's doing what its name suggests it probably should be doing: Rocket Lab is building rockets.
Image source: Rocket Lab.
Not all rockets go up
Specifically, it's building suborbital hypersonic rockets under the Department of Defense's (DOD) Hypersonic Accelerator Suborbital Test Electron (HASTE) program.
As Rocket Lab announced last week, the DOD will pay it $190 million to conduct 20 HASTE launches over four years using the company's Electron rocket. Both by number of contracted launches and by dollar value, this is Rocket Lab's "single largest launch agreement yet." (Notably, these 20 launches are in addition to the seven HASTE missions Rocket Lab has already conducted, with a 100% success rate.)
The rockets in question won't go to space, exactly, or at least won't stay there. Flying suborbital trajectories, they'll be used to develop new hypersonic weapons for the U.S. military.
Kratos Defense & Security Solutions (NASDAQ: KTOS) is named as the prime contractor overseeing the tests, with the entire sequence of tests being called the Multi-Service Advanced Capability Hypersonic Test Bed 2.0 program, or MACH-TB 2.0 Task Area 1. Incidentally, Kratos's lead role will earn it ... $1.45 billion.
So, I suppose you could say this contract is more about Kratos than about Rocket Lab. And yet, Rocket Lab probably isn't complaining.
After all, when Rocket Lab first started out back in 2018, it was charging $6.5 million for rides on its Electron rocket. By 2023, that price was up to $7.5 million. As demand for small rocket launches has grown unabated (indeed, Rocket Lab's launch cadence is increasing), the company's launch price leapt again, to $8.4 million, in 2024.
The HASTE launches will cost closer to $9.5 million each.
What it means for investors
This is great news for Rocket Lab stock, generating not only revenue growth but also growth in the profit margins it earns on its revenue. According to data from S&P Global Market Intelligence, Rocket Lab's launch division gross margin passed 40% with the 2024 price increase, eclipsing the company's space division (that's the one that builds the satellites), which is currently earning a 31% margin.
Charging 13% more per launch than the last known Electron price, the HASTE launches now promise to expand Rocket Lab's profit margin further -- perhaps much further if $9.5 million becomes the new launch price for all Rocket Lab Electron launches.
Wall Street analysts still don't expect Rocket Lab to turn profitable before next year, when Neutron starts launching. An increase in profit margin as big as this one, though, just might surprise them.
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Rich Smith has positions in Rocket Lab. The Motley Fool has positions in and recommends Kratos Defense & Security Solutions and Rocket Lab. The Motley Fool has a disclosure policy.
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