Description

Shortable shares: approx. 1 mm available at ~1% with Insider Lockup about to expire on February 25 that would add 362 million shares to the float. Can hedge with calls or buy puts.

We think Rocket Labs USA (NASDAQ: RKLB), a recent space SPAC presents an attractive asymmetric near term short opportunity at the current lofty $4.6 billion market cap and $4 billion EV.

RKLB trades at a  ~60x revenue multiple on 2021E revenues of $69 million and ~23x revenue multiple on 2022E revenues of $176 million. The Company generated revenues of only $48.4 million in 2019, $35.2 million in 2020 and $34.8 million during 9M 2021 ($69 million projected for 2021). To justify the high valuation, management says the valuation is “in line” with SpaceX which trades at ~50x revenues.

Even if the Company hits all the projections presented at the time of the SPAC merger, the current valuation still looks super rich. Plus the massive lockup expiration on Feburary 25^th will be a near term catalyst for insiders to sell their shares.

SPAC Merger Background

Rocket Labs went public via a SPAC merger with VACQ (“Vector Acquisition Corp”) on August 25, 2021. The Company raised total cash proceeds of $777 million including $310 million held in trust after redemptions and $467 million from a PIPE.  After $30 million was paid to existing Rocket Lab shareholders and $49 million of transaction expenses, pro forma cash was around $698 million.  

The envisioned use of proceeds was to fund the development of the Neutron launch vehicle and expansion into space applications for the delivery of data and services from space. Since going public, Rocket Labs has made three acquisitions of ASI Aerospace for $40 million, Plantetary Systems Corporation for $42 million in cash and 1.7 million shares, and SolAero for $80 million in cash.  

Rocket Lab shareholders are subject to a Lock Up, which expires 6 months after the Closing Date, which would be February 25, 2022. This would bring around 362 million shares into the float. The VACQ Sponsor is subject to a lock up until the earlier of (i) 12 months after Closing or (ii) closing price of RKLB exceeds $12 for 20 out of 30 consecutive trading days starting 150 days after Closing.

In January 2022, the Company redeemed its 16.3 million warrants outstanding with holders receiving 0.2843 shares per warrant. Additionally, a further 59.875 million shares are issuable under the Company’s 2021 Equity Incentive Plan.

Business Overview

Rocket Labs is an end-to-end aerospace company, which provides rocket launch services, satellites and other spacecraft, and on-orbit management solutions for the space and defense industries.

Rocket Labs operates its business in two segments:

·    Launch Services is the design, manufacture, and launch of orbital rockets to deploy payloads to various Earth orbits and interplanetary destinations.

·    Space Systems is the design and manufacture of spacecraft components and spacecraft, as well as on-orbit constellation management services and space data applications.

Historically, the Company has focused on the development of small-class launch vehicles and related sale of launch services through it Electron orbit small launch vehicle, which has delivered 105 satellites to orbit across 18 missions since its maiden launch in 2017.

Rocket Labs built three launch vehicles in 2019 and eight launch vehicles in 2020. The Company estimates it will build approximately eight launch vehicles by the end of 2021. Rocket Labs launched six vehicles in 2019 and seven vehicles in 2020 and four vehicles through 9M 2021. So far the Company has had two failed customer launches, which occurred in July 2020 and May 2021.

Rocket Labs is currently innovating in the areas of medium-class launch vehicles and launch services, space systems design and manufacturing, on-orbit management solutions, and space data applications. In March 2021, Rocket Labs announced plans to develop a medium class launch vehicle called Neuron, which will increase the payload capacity of its space launch vehicles to approximately 17,000 lbs (8,000 kg), for launches to low-Earth orbit and lighter payloads into higher orbits.

Rocket Labs is currently dependent on Electron and maintaining a sufficient launch rate as Neutron vehicle is not expected to launch until 2024.

Backlog and Financial Projections

Rocket Lab’s growth opportunity is dependent on its ability to expand the addressable launch services market with it Neutron launch vehicle that will address large commercial and government constellation launch opportunities and its ability to win satellite spacecraft constellation missions and expand its portfolio of strategic spacecraft components.

The SPAC merger valuation was based on Rocket Lab’s highly optimistic projections of becoming EBITDA positive in 2023, cash flow positive in 2024 and achieving $1 billion of revenues in 2026. The Neutron launch vehicle which is only expected to launch in 2024 and penetration of the broader market for larger constellation satellite manufacturing, which is only expected to launch in 2024 accounts for ~57% of the Company’s $1.5 billion revenue growth between 2021 and 2027.  The remaining revenue growth of ~43% is attributable to Electron and further penetration of the broader market for small satellite manufacturing and related services.  

Rocket Labs derives its revenues from a combination of long-term fixed price contracts for launch services and spacecraft builds and purchase order spacecraft component sales.  As of 9M 2021, the Company’s backlog totaled $183.1 million with 52% of that backlog expected to be recognized over the next 12 months. Beyond 2021, the Company’s projections are not even based on signed agreements which given its limited operating history seem to be a crapshoot.

Catalyst

Insider Lockup Expiration on February 25

Launch Issues

Missing projections

Rerating of crazy space spacs down to earth