Yahoo Finance’s Brian Sozzi and Emily McCormick speak with Deutsche Bank Analyst, Edison Yu, about the company’s take on Rocket Labs after initiating it with a buy rating and an $18 price target.
BRIAN SOZZI: Yahoo Finance call of the day has nothing to do with crypto or would-be stock-market corrections but rather space. Deutsche Bank analyst Edison Yu is out with an initiation on upstart rocket-launching company Rocket Lab. The price target of $18 on Rocket Lab calls for about a 70% move higher in the stock.
Edison Yu joins us now. Edison, good to see you here on this morning. So you call Rocket Lab, quote, "the highest quality space asset to enter public markets so far." Why is that?
EDISON YU: Sure, and thanks for having me on this morning. So there's two main reasons for why we say that. First is Rocket Lab's track record. If you look at all the launches they've done, they've done 21 launches to space. They've succeeded 19 times. So it's over 90% accuracy rate, and it's just very, very uncommon to see that in the industry.
If you look back in just the last, you know, couple months, you've seen actually two failures from some of the other upstarts, and it just shows you that getting a rocket into space is extremely difficult, and that heritage of reliability is very difficult to find. So at the rocket-launch level, these guys are just extremely high quality, extremely reliable, which is rare.
The second reason is the company has gotten an incredible amount of traction, especially recently, on the satellite business. And this business is basically you have a rocket, right, and you have to take something to space. They're getting more value add from the payload that's going into space, which just demonstrates the power they have in terms of customer relations, in terms of backlog, pipeline, into other things just beyond taking stuff to space.
So we think because of these two drivers that the company is arguably probably the best space-launch asset, even space asset, to hit the market over the last year.
EMILY MCCORMICK: Edison, this is Emily. Because this is such a frontier industry with perhaps not a ton of obvious other public companies to use as benchmarks for comparison, what metrics do you think investors should really be focused on here with Rocket Lab to gauge their relative success?
EDISON YU: Sure. So we look at, I would say, two things. First is the backlog and pipeline, or in other words, how much traction they're getting with customers. As you very accurately pointed out, right, the revenue is very low right now. This is a very nascent market. But I think everybody would agree, based on a lot of the macro drivers and industry drivers, that this is going to be, you know, $100 billion, even trillion-dollar industry going forward. So we think Rocket Lab, even if they capture a very small portion of that, it will be an extremely valuable company.
And just to give you a demonstration of how much traction they've been getting, if you look at the backlog they've gotten with customers coming out of September, it's about $170 million, and this is only $60 million about a year ago. So that's incredible growth in the backlog in just, you know, about a year.
If you look at the pipeline, they were only looking at about a $2 billion pipeline earlier this year. That pipeline has grown to over $4 billion. So you can see that just the amount of traction they're getting with customers is extremely, extremely strong.
The second thing we would look at is basically-- it's a bit more of a, I would say, qualitative metric is just basically the amount of success they can get with launches. And, you know, they had a little hiccup earlier this year, but then you saw then, you know, a couple months later they launched essentially flawlessly into space. And basically every launch going forward will be scrutinized to a very, very, I would say, high standard because of their incredible flight heritage.
So I would say these two things, customer traction and launch success, these are the metrics that we'd probably want to monitor closely. And we don't want-- I don't think people will really care too much about, you know, for example, what was the operating margin in the last quarter? It's just these things, they take scale. They scale up very quickly. And we wouldn't be focused too much on that in the near term.
BRIAN SOZZI: Madison, you write in great detail about a new rocket for Rocket Lab called the Neutron. What is that? when does it launch? and what does it carry?
EDISON YU: Sure. So the way to think about Neutron is, I would say, twofold. To your question directly, you know, it launches in 2024, assuming everything goes on track which, you know, is by no means a slam dunk given the space industry can be-- you know, anything can happen. But it's supposed to occur in 2024. We have fairly high confidence that it will.
And the key to this is that it's going to be able to carry a lot more into space relative to the current product, which is the Electron, and that's a small rocket. So if you think about it in numbers terms, Neutron is going to carry about 8,000 kilograms, and Electron, which is the current rocket, carries about 300. So it opens up a very new opportunity for them to bring a lot more to space per launch. And that's basically the key kind of TAM expander for them on the rocket-launch side.
The second part, which is a bit more, I would say, difficult to say, is this Neutron rocket will actually be able to carry humans. If you think about the small rocket they're doing right now, that is not designed to carry humans. And once you start carrying humans, you know, that opens up, you know, missions to the International Space Station. I mean, we could talk about the moon. It just opens up another set of possibilities that, at the moment, it may not be very evident. But if you believe that, you know, civilization is getting much more interested in space and wants to explore the cosmos more, this is going to be a key part of that.
BRIAN SOZZI: Deutsche Bank analyst Edison Yu with today's Yahoo Finance call of the day. Really enjoyed this one. Have a great rest of the week.