Opinion: SpaceX is a pioneer — a similar company you can actually invest in is Rocket Lab

By the time Churchill Capital Corp. IV finally announced last week that it would merge with Lucid Motors Inc. after weeks of speculation, investors “sold the news,” dumping its shares.

Some blamed the SPAC — special purpose acquisition company — for weakness in the entire SPAC cottage industry.

You might recall that I wrote about that SPAC’s danger last week — in February I had called

a “random number generator” that should be avoided.

I’ve also been warning that valuations in the stock market have been way out of whack. But now, with some good stocks out there getting slammed along with the rest of the market, it’s time to dig into some of my favorite names and see if it is time to add to them.

‘Space Revolution’

I’m constantly scouring the world for the best ways to invest in the most obvious next trillion-dollar marketplace, what I call The Space Revolution. Recently, a handful of space-related companies have started coming public (or preparing to come public in declared mergers) via SPACs. Most of these companies look too risky or have questionable business plans and management teams. 

Rocket Lab

Rocket Lab, on the other hand, is well-positioned. It is being brought public by a SPAC, Vector Acquisition Corp.
in the second quarter. In the history of spaceflight, only two private companies have delivered regular and reliable access to orbit for real revenue.  I’m sure most of you have heard of one of these companies, SpaceX. Well, Rocket Lab is the other. 

Rocket Lab is building a vertically integrated platform (you know I love these) to enable the hundreds, and soon to be thousands, of companies building satellites a simple, fast, and cost-effective method of launching into orbit. 

Here’s a video about the company:

Rocket Lab has scaled to a monthly launch cadence faster than any commercial launch provider in history. It took the company only six years.   

(Rocket Lab)

During that time, Rocket Lab has launched 18 rockets into space, deploying 97 satellites and even recently demonstrated the ability to recover the first stage of the rocket for use on later missions.  The company’s first rocket, Electron, is targeting the market that requires smaller payloads (up to 300 kilos), and customers requiring flexibility with launch timelines (currently 132 launch slots available every year). 

One industry forecast projects 38,000 satellites will be built and launched from 2020-2029. Of those, 90% are expected to weigh less than 300 kilos.

Besides being first to market, another thing that sets Rocket Lab’s Electron rocket apart from its small-rocket competition is the company’s unique Kick Stage booster. Kick Stage is a “third stage” booster that enables the launch of multiple satellites for different customers on a rideshare rocket and delivery of those satellites to different orbits/planes. 

Such flexibility for the customer is likely to help Rocket Lab capture a large percentage of the small-satellite market. Kick Stage technology is perhaps Rocket Lab’s biggest technological advantage.  

One thing that Rocket Lab’s management team has learned while working with satellite customers is that small satellites are going to need to work together in constellations to form networks. Rocket Lab has recently introduced a new rocket, Neutron, which targets this larger payload market. Neutron, with an 8,000-kilo payload capacity, fills the current void between the small (under 300-kilo payload) rockets and the large Falcon 9 rockets being launched by SpaceX. 

In addition to delivering satellite payloads, Neutron is being developed to carry both resupply cargo and even astronauts. Neutron is scheduled to make its first commercial launch in 2024.

(Rocket Lab)

Satellite bus system

An even larger market that Rocket Lab is going after is what it calls Space Systems.  This market is being met by the Photon satellite bus system. Basically, the company takes its Kick Stage from the Electron rocket and modifies it so that the Kick Stage bus itself becomes a fully functional satellite, which allows customers to attach payloads directly to the Photon shuttle that then goes into orbit.

The company already turned one of its Photon vehicles into a functioning satellite in orbit. Think of this as a satellite-as-a-service business. Photon is a big part of that platform that I mentioned earlier.

As evidence of the future potential for Photon, NASA has selected it to deliver a cubesat into orbit later this year. This satellite is an early part of the Artemis program, which is planning to land the first woman and next man on the moon by 2024. Rocket Lab is using an Electron rocket and Photon spacecraft to support the early portion of this mission

(Rocket Lab)

Now, you might be thinking about the competition from names that you’ve heard of, such as SpaceX and Blue Origin. Whereas both of those companies are focused on huge rockets launching big payloads into space, Rocket Lab is focused on small to medium payloads and on the market that depends on speed to launch, as well as low costs.

SpaceX charges about $62 million for a dedicated launch. Rocket Lab advertises a dedicated launch for $5.7 million, which can be lowered even further with a shared ride with other customers.

Rocket Lab will face competition in the small rocket market in the near future, but I think with their head start and technological advances, they will meet those challenges.  

The financials

On to the financials: Unlike many other companies going public through SPACs, Rocket Lab already has paying customers bringing in revenue. Last year, Rocket Lab had revenue of $35 million. That number is forecast to rise to $69 million this year.  As the company begins to scale, it sees that number growing exponentially to over $1.5 billion in 2027.

If the Space Revolution continues to grow, with hundreds of billions starting to be thrown at it from the capital markets, I think that $1.5 billion estimate for 2027 might be met in 2025 and the exponential growth from there might even accelerate.

As part of the SPAC process, Rocket Lab released its projections of being profitable in 2023 and cash-flow-positive in 2024. After that, the company expects profits to increase rapidly and to throw off a significant amount of free cash flow.  

Valuing this company today, it’s definitely not cheap. However, Rocket Lab expects to grow sales at a compounded annual growth rate of over 68% over the next six years.

Like a VC investment for you and me

Remember, we are investing for the next 10,000 days, so I see VACQ as an opportunity for us to get a venture-capital-type investment at a reasonable valuation of under $6 billion, or about 30 times next year’s sales estimate.

And, as always, I look to get in ahead of the rest of the world, starting our investments in this new Revolutionary sector before  it becomes a multi-trillion dollar market. I’m starting small and using tranches. I’m buying my first tranche of about one-third of a full position and will add in the coming weeks, especially if we get a dip. 

My research and analysis indicate that The Space Revolution is going to be the next, most obvious trillion-dollar economy that I want to get in front of. SpaceX is clearly the big dog in private space for now, but there are other great companies that we should buy when they come public. Rocket Lab is the other great private company and the only one that is now about to come public that we can buy on a stock exchange. 

Cody Willard is a columnist for MarketWatch and editor of the Revolution Investing newsletter. Willard or his investment firm may own, or plan to own, securities mentioned in this column.

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