Rocket Lab Inks Its Biggest Satellite Launch Contract Ever

The news around Rocket Lab USA (NASDAQ: RKLB) just keeps getting better and better.

Earlier this month, the satellite-launch company scored a bit of a coup when it parlayed a 2021 purchase of a tiny solar power company -- SolAero Holdings -- into nearly $50 million in U.S. CHIPS Act and other government subsidies. Solar cells are specialty semiconductors, and that means that SolAero's solar cells, tailored to produce electric power for spacecraft in orbit, are also chips the government can subsidize.

Abracadabra, Rocket Lab just made back $50 million of the $80 million it spent to buy SolAero, courtesy of U.S. taxpayers -- and even that wasn't the biggest news for Rocket Lab this month.

Its largest satellite launch contract ever

On June 7, Rocket Lab announced it had won a contract to launch five rockets for French Internet of Things (IoT) company Kineis. Each of these rockets will in turn carry five Kineis satellites. So by the time this contract is complete, Rocket Lab will have put a constellation of 25 Kineis satellites into orbit -- the biggest such constellation of satellites Rocket Lab has ever been hired to launch.

Rocket Lab opens the launch window for the first of these flights, dubbed "No Time Toulouse," on June 19. Once complete, the constellation will enable Kineis to connect "millions" of IoT devices around the world, and as a secondary function, enable automatic identification of ships at sea.

For Rocket Lab, it will also mark the company's 50th Electron rocket launch since the company began operations in 2017. As the company boasted on X (formerly Twitter) this week, it will have scaled its operations to 50 launches faster than any other space company in history has ever done.

More satellites, more rockets

The Kineis contract earns Rocket Lab some nice bragging rights. When it comes to earning actual cash, though, Rocket Lab has another customer that's arguably even more important. BlackSky (NYSE: BKSY) is the company's biggest rocket contract. Rocket Lab has conducted launches five times for BlackSky already, and has at least four more launches on its manifest.

At an estimated $7.5 million per launch, this means BlackSky will eventually pay Rocket Lab about $67.5 million, versus the $37.5 million it will probably be getting from Kineis.

Is Rocket Lab stock a buy?

What's the takeaway from all of this for investors? Rocket Lab's launch services business isn't the company's most profitable.

S&P Global Market Intelligence shows the company is still only earning about an 11% gross profit margin from launching rockets. The company earns margins twice as high from space systems (i.e., manufacturing satellites and selling satellite parts to other manufacturers). And of course, neither division is currently generating operating or net profits for Rocket Lab.

Still, owning its own rockets business makes it easier for Rocket Lab to sell its more profitable satellites. And with Rocket Lab currently growing its rockets segment even faster than SpaceX, I'd argue this division is still an important growth driver for the company. Between the two of them, Rocket Lab's contracts with BlackSky and Kineis alone add up to $105 million in value, or about 50% more than the launch services segment's revenue last year.

Add in all the other companies Rocket Lab works for, and the business looks on track to launch as least 16 times this year and generate perhaps $120 million in revenue from this division -- doubling its launch revenue over the past two years. While I'd be much more confident owning the stock if Rocket Lab was already profitable, at its current rate of growth, with revenue doubling every couple of years, I think it's safe to say at this point that the company will reach profitability relatively soon.

The best time to buy Rocket Lab stock will be before that happens -- and everyone else realizes that key milestone.

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Rich Smith has positions in Rocket Lab USA. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.