Rocket Lab (NASDAQ:RKLB) Misses Q2 Sales Targets, But Stock Soars 8.8%

Aerospace and defense company Rocket Lab (NASDAQCM:RKLB) missed analysts' expectations in Q2 CY2024, with revenue up 71.2% year on year to $106.3 million. Next quarter's revenue guidance of $102.5 million also underwhelmed, coming in 7.3% below analysts' estimates. It made a GAAP loss of $0.08 per share, improving from its loss of $0.10 per share in the same quarter last year.

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Rocket Lab founder and CEO, Sir Peter Beck, said: “This year’s second quarter was Rocket Lab’s highest revenue quarter in Company history at $106 million. This 71% year-on-year revenue increase demonstrates the strong and growing demand for our launch services and space systems products, and importantly, our team’s ability to execute against it. Meanwhile, we reached a critical milestone in the development of our new medium lift rocket Neutron, with the successful completion of the first hot fire for the Archimedes engine. Over the same period, we made significant progress in Neutron production and launch infrastructure with the scaling of engine production facilities, installation of the automated fiber placement machine that will produce Neutron’s largest carbon fiber structures, and we furthered development of Launch Complex 3 and the integration and assembly facility on site in Wallops, Virginia. On the small launch front, Electron remains the leading small rocket globally with successful launches in the quarter for government and commercial customers, and demand for it continues to grow with 17 new launches signed so far this year. We also continue to reach development and production milestones across our space systems programs, in which we have more than $720 million in spacecraft under contract. Some significant achievements on this front include the completion of twin Rocket Lab-designed and built satellites for a NASA mission to Mars, as well as completing successful development reviews for the government and commercial constellations we have in work.”

Becoming the first first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ:RKLB) offers rockets designed for launching small satellites.

Aerospace

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Sales Growth

A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Luckily, Rocket Lab's sales grew at an incredible 118% compounded annual growth rate over the last four years. This is a great starting point for our analysis because it shows Rocket Lab's offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Rocket Lab's annualized revenue growth of 59.2% over the last two years is below its four-year trend, but we still think the results were good and suggest demand was strong.

This quarter, Rocket Lab achieved a magnificent 71.2% year-on-year revenue growth rate, but its $106.3 million of revenue fell short of Wall Street's lofty estimates. The company is guiding for revenue to rise 51.5% year on year to $102.5 million next quarter, improving from the 7.3% year-on-year increase it recorded in the same quarter last year. Looking ahead, Wall Street expects sales to grow 47.5% over the next 12 months, a deceleration from this quarter.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Unprofitable industrials companies require extra attention because they could get caught swimming naked if the tide goes out. It's hard to trust that Rocket Lab can endure a full cycle as its high expenses have contributed to an average operating margin of negative 74.1% over the last five years.

On the bright side, Rocket Lab's annual operating margin rose significantly over the last five years, as its sales growth gave it immense operating leverage. Still, it will take much more for the company to reach long-term profitability.

This quarter, Rocket Lab generated an operating profit margin of negative 40.7%, up 32.1 percentage points year on year. This increase was a welcome development and shows it was recently more efficient because its expenses grew slower than its revenue.

EPS

We track the long-term growth in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company's growth was profitable.

Although Rocket Lab's full-year earnings are still negative, it reduced its losses and improved its EPS by 48.3% annually over the last four years. The next few quarters will be critical for assessing its long-term profitability. We hope to see an inflection point soon.

In Q2, Rocket Lab reported EPS at negative $0.08, up from negative $0.10 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street is optimistic. Analysts are projecting Rocket Lab's EPS of negative $0.36 in the last year to reach break even.

Key Takeaways from Rocket Lab's Q2 Results

We were impressed by how significantly Rocket Lab blew past analysts' EPS expectations this quarter. On the other hand, its revenue guidance for next quarter missed and its EBITDA guidance for next quarter fell short of Wall Street's estimates. The market seems to be looking past the weaker guidance. The stock traded up 8.8% to $5.19 immediately following the results.

So should you invest in Rocket Lab right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.