Rocket Lab's Strategic Move Pays off with Lucrative Contracts from U.S. Space Force

Rocket Lab Wins Space Force Contract -- at Twice the Usual Price

Rocket Lab is looking more like SpaceX by the day. Five years ago, Rocket Lab USA (NASDAQ: RKLB) made a bold move and changed the course of the company.

Since setting up shop in 2017, the tiny rocket maker had launched a total of just 10 rockets -- fewer than three per year -- out of its Launch Complex 1 (LC-1) in New Zealand. LC-1 was hardly working at full capacity. And yet, Rocket Lab had high hopes to grow its business, launch more frequently, and one day perhaps even challenge SpaceX for dominance in space launch. First, however, Rocket Lab really needed to get closer to one of its most lucrative customers: the U.S. government.

A bet that paid off -- and keeps paying off

The first indication that this bet is paying off for Rocket Lab came in December 2023, when the U.S. Space Force named Rocket Lab one of its "prime contractors" and awarded the company a $515 million contract to build satellites for a new missile defense system. Further evidence that Rocket Lab made the right decision in moving to Wallops arrived this week.

On Monday, Space Force announced it has awarded Rocket Lab $14.5 million to launch an experimental "DISKSat" disk-shaped satellite to demonstrate "sustained very low Earth orbit" around the planet. No specific launch date has yet been picked, although the mission is expected to take off from LC-2 sometime in the next two years.

Twice the price is really nice (for Rocket Lab)

And speaking of cost, let's consider the cost of this launch. Unlike SpaceX, Rocket Lab doesn't publicly advertise its launch costs, although it's widely understood to charge about $7.5 million for a dedicated Electron rocket launch (according to Payload Research). Space Force, in contrast, will be paying a price nearly twice that to launch DISKSat, which implies an impressive gross profit margin for Rocket Lab.

And let's be blunt: Rocket Lab could really use the extra margin.

Reduce, reuse, recycle

A second way Rocket Lab is aiming to boost profits is by reducing its costs. Like SpaceX, it aims to do this by reusing rockets.

On Wednesday, the company confirmed that the first stage of one of its Electron rockets, which it launched in January and recovered after it parachuted back to land in the ocean, has been put back in the production line for "fit out and rigorous qualification and acceptance testing." Assuming everything checks out, Rocket Lab may relaunch the rocket "in the new year" (presumably meaning 2025). This would make Rocket Lab the only private space company other than SpaceX possessing reusable rockets.

For the record, when SpaceX began reusing rockets in 2017, the company calculated the cost savings at approximately 40% -- 40 full percentage points of additional gross margin on its launches. Assuming Rocket Lab succeeds in this endeavor, it could be enough to turn Rocket Lab's launch business profitable when combined with more lucrative U.S. government launch contracts.

Analysts who don't expect Rocket Lab to become profitable before 2026 at the earliest may be in for a pleasant surprise.