Small rocket manufacturing company Rocket Lab (RKLB 9.45%) (which, despite its size, is the second most common rocket launcher in the United States) took investors on a pretty wild ride last week, shooting up more than 40% Wednesday morningthen returning much of his winnings in the afternoon at the top until Thursday…before turning around and winning back much of his gains on Friday.

The catalyst behind all this turbulence: third quarter results.

Rocket Lab in numbers

Rocket Lab released its third-quarter results last week, and by “profits” I mean losses, because Rocket Lab didn’t actually make anything last quarter. Not even close.

Despite sales growth of 55% and a record launch for all of 2023 with months to spare in 2024, Rocket Lab actually lost $0.10 per share for the quarter. (On the plus side, it was better than the $0.11 per share Wall Street expected, but it was still a loss — and a loss 25% bigger than that suffered in the third quarter of 2023.) On the face of it , this seems like bad news. . But investors didn’t see it that way at all. Instead, investors focused on Rocket Lab’s future earnings prospects.

And Rocket Lab has them in abundance.

After growing revenue 55% in the third quarter, Rocket Lab said last week it would make more than double year-over-year revenue in the fourth quarter, confirming bullish theories that the company the growth rate is actually accelerating. And that acceleration is fueled by strong demand from satellite companies for Rocket Lab’s product, the small Electron rocket.

In a market where space companies usually try to undercut themselves to win contracts and brag about how cheap their rockets are (yes, I’m talking about SpaceX), CEO Sir Peter Beck took a fresh approach in Rocket Lab’s third-quarter report. Instead of cutting costs and prices, he said Rocket Lab raised its average selling price per launch in the third quarter, at $8.4 million.

The fact that customers not only happily paid this price, but placed $55 million in new orders during the quarter, is a testament to the product’s popularity.

Rocket Lab’s new rocket

And that’s not all they like. Rocket Lab also announced last week that its new Neutron Medium Transport Vehicle won a “multiple launch” contract with an undisclosed client. Neutron hasn’t even launched yet, but this customer has so much confidence in it that it plans to use Neutron to deploy its “entire constellation” of satellites.

And since Neutron would have a price tag of around $50 million per launch, that’s going to accelerate Rocket Lab’s revenue growth rate even more.

Revenue for Rocket Lab, and profits too?

You might think that all of the above was good enough news to justify Rocket Lab’s stock rally last week – but there’s actually even more good news in store.

Consider: According to analysts surveyed by S&P Global Market IntelligenceRocket Lab stock is not expected to become profitable until 2027 at the earliest – a date pushed back in tandem with delays in preparing for Neutron’s launch. But the winnings could become positive even sooner than that.

Discussing his earnings report with Payload Space analysts last week, CEO Beck pointed out that the main reason his company is losing money right now is due to all the investments it’s making in research and development on Neutron. But as soon as Neutron moves from R&D to launch, those costs disappear and the situation changes dramatically: “As soon as you start launching customers on that, everything changes,” he said.

What this all means for Rocket Lab stock

Now, does this mean that when Neutron begins launch next year, Rocket Lab’s gross profit margin in space launch will immediately drop from 11% to the 40-50% gross margin Beck expects, which could cause net profit to fall to net income. ?

Maybe. Only time will tell.

But for now, just the prospect of it happening seems enough to attract investors’ attention. Despite a few bumps in the road, Rocket Lab stock appears to be on its way to the moon.