Will Ebiefung, The Motley Fool
4 min read
In This Article:
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The space industry has massive potential as it moves to the private sector.
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Industry leader Tesla remains private -- and so essentially uninvestable.
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Could publicly traded upstart contender Rocket Lab be a good alternative?
Space exploration is rapidly shifting away from being the work of governments to private companies, and Wall Street is taking notice. If analysts at McKinsey & Company are correct, the industry could add an eye-watering $1.8 trillion to the global economy, driven by demand for satellites and their downstream effects on terrestrial companies.
Industry leader SpaceX has already demonstrated the value-creating potential in this industry, offering internet connectivity and payload launches. However, regular investors have no access because it's private, creating a need for viable alternatives. Let's dig deeper to decide if Rocket Lab USA (NASDAQ: RKLB) can fit the bill over the coming years.
Founded in 2006 and going public through a merger with a special purpose acquisition company (SPAC) in 2021, Rocket Lab is one of the few ways investors can get direct access to the rocket launch services industry, currently dominated by SpaceX. Both companies help public and private sector clients transport payloads into space while also selling satellite-related hardware. But they aren't totally the same.
SpaceX focuses on developing larger rockets like its flagship Warship, which may be capable of carrying payloads of 100 to 150 tons when it is complete. Rocket Lab's rockets are significantly smaller. Its largest rocket under development is the Neutron, which will only be able to carry relatively small payloads of 13,000 kg (roughly 13 tons) to low Earth orbit. There is also a big difference in the scale of the two companies' operations.
Elon Musk projects that SpaceX could earn a profit of $15.5 billion in 2025 alone -- driven in large part by its broadband internet service segment, Starlink. Assuming a market average price-to-earnings multiple (P/E) of 29, the company would be valued at $450 billion. For comparison, Rocket Lab's market capitalization is just under $17 billion.
While Rocket Lab is small, its business is growing fast. First-quarter revenue jumped 32% year over year to $123 million as the company launched several missions through its small orbital rocket, Electron, which helps clients deliver microsatellites and observation spacecraft. These types of services are crucial for national security and intelligence agencies that need up-to-date tracking of geopolitical hotspots.
