Rocket Lab‘s (RKLB) recent acquisition of Iridium (IRDM) may significantly boost RKLB’s revenue and profits in the long term. Still, some of these gains may take several years to materialize. And given the tough competition that RKLB will face as it attempts to capitalize on these opportunities, its efforts in a number of those areas may not be as successful as some expect.
Meanwhile, the outlook of the company’s key Neutron rocket remains uncertain, its insiders continue to unload large amounts of its shares, and its valuation is still extremely high.
On a positive note, the firm has recently made some impressive deals with the Pentagon, and Iridium could enable it to considerably increase its revenue in the longer term from both the War Department and firms carrying out activities in space. But given all of the uncertainty that Rocket Lab is facing and the high risk posed by the shares, investors should consider unloading RKLB at this point.
Investors Should Consider the Challenges RKLB will Face After Buying IRDM
In Rocket Lab’s press release announcing the acquisition of Iridium, which provides satellite-communication services, RKLB reported that the deal “will give Rocket Lab an immediate foothold in space-based applications, including Internet of Things and direct-to-device (D2D).” But in the Internet of Things space, RKLB will face off against some very large and well-established players, including Amazon (AMZN), Elon Musk’s SpaceX (SPCX), Viasat (VSAT), and EchoStar (ECHO).
Further, direct-to-smartphone services could take a long time for Rocket Lab to get off the ground. So far, Iridium’s D2D initiative, which is expected to be launched around the fourth quarter of this year, is reportedly focused on “narrowband … low-power, low-cost devices like smart meters and agricultural sensors.”
Since it is taking SpaceX, Viasat, and AST Spacemobile (AST) several years to launch their D2D services for smartphones, it may take multiple years for Rocket Lab to catch up with them. And by the time RKLB does so, it could be at a serious disadvantage against those players, along with Amazon, which will likely have already made exclusive partnership deals with most of the world’s leading telecom companies. While Rocket Lab could overcome all these hurdles, it may not be able to.
Neutron Problems, Insider Selling, and a Stratospheric Valuation
The launch of RKLB’s medium-sized Neutron rocket, which is a key component of the company’s future growth plans, has been delayed for a third time, raising questions about its viability. And further undermining my confidence in RKLB’s outlook, company insiders continue to unload considerable amounts of the company’s shares. Most recently, its Senior Counsel, Arjun Kampani, unloaded a combined total of over 111,000 shares on May 28 and June 18, while board member Alexander Slusky similarly dropped a combined 100,000 units on May 28 and June 2. And CFO Adam Spice sold 62,744 shares on May 26.
Based on analysts’ average estimate of the combined 2027 sales of RKLB and IRDM, RKLB is trading at a very high forward price-to-sales ratio of nearly 30 times.
Considering RKLB’s Potential Satellite-Communications Deals With the Pentagon and Private Firms
In the second quarter, Rocket Lab received a few impressive deals from the Pentagon, and the company took a step towards furnishing the Space Development Agency with “satellites equipped with advanced missile warning, tracking, and defense capabilities to U.S. and allied national security.”
Given the company’s success in securing Department of War deals and the agency’s interest in expanding its use of satellite communications, Iridium, under Rocket Lab’s auspices, could obtain significant contracts from the Pentagon. On the other hand, RKLB will face sizeable competition in this area from entrenched players such as SpaceX, Amazon, Viasat, Telesat (TSAT), and Intelsat.
Rocket Lab can obtain satellite-communications deals with NASA and firms building space-based data centers and carrying out other activities in space. But it will likely face competition for these contracts from the same firms with which it will have to vie for Pentagon deals.
Expectations on RKLB Stock
The company’s tough competition, the Neutron’s technical problems, RKLB’s insider share sales, and its high valuation combine to make the outlook of its shares quite risky and uncertain.
