Rocket Lab (RKLB -4.58%) stock took off like -- what else? -- a rocket this week. Following President Donald Trump's inaugural address, in which the 47th president doubled down on his previous administration's promise to put astronauts on Mars, shares of the tiny rocket maker (that itself has a contract to send NASA space probes to the Red Planet) surged 30% in a day.
Exciting as this prospect may be, though, Mars isn't what will turn Rocket Lab into a hugely profitable company. For this, Rocket Lab must figure out how to make more money on Earth.
Rocket Lab drops a hint
CEO Peter Beck all but admitted as much when last I interviewed him about Rocket Lab's plans back in 2023. In the course of our chat, we discussed Rocket Lab's rise to become the second most frequent U.S. rocket launcher after SpaceX, and also Rocket Lab's efforts to develop a new reusable rocket in order to better compete with its larger rival's reusable Falcon 9 rockets. But we also discussed how SpaceX was turning the corner to become solidly profitable, and Beck agreed that Starlink seemed a key part of SpaceX's plan.
Launching nearly 100 rockets in 2023, SpaceX was just approaching a point at which its operations were big enough to produce consistent profits. The thing that finally turned SpaceX decidedly profitable in 2024 -- that in fact may have earned SpaceX as much as $4.5 billion in profit last year -- was SpaceX's decision to build its own satellite constellation, and to charge Earthlings for access to broadband internet service provided by Starlink satellites in space.
As of 2023, though, Beck hadn't yet decided what Rocket Lab's answer to Starlink might be, or what new business the company would enter into to provide profits superior to what can be earned simply launching payloads to space. Or at least he wasn't prepared to say this publicly.
But in 2025, he may have finally made his decision.
Does Rocket Lab want its own satellites?
Sometime later this year, Rocket Lab is expected to test fly its new Neutron reusable rocket. It's expected to fly three commercial flights in 2026, then ramp up its flight cadence to five launches in 2027, and keep growing from there.
Boasting a payload to low Earth orbit of 13 metric tons, Neutron is designed to launch entire constellations at a time of small satellites. Initially, Rocket Lab will do this for customers such as Kinéis and Synspective. But in a recent report, Payload Research argues that "SpaceX set the model for leveraging an in-house rocket to deploy in-house satellites," and that Rocket Lab might be preparing to steal that page from SpaceX's playbook.
Learning from the example SpaceX set, Payload argues that using an in-house rocket to launch in-house satellites drives "massive cost synergies," creates demand in excess of customer demand, and helps a rocket company reach a high launch cadence. And using a reusable rocket drives down the marginal cost of each launch, allowing a space company to lower the cost of each launch. This, in turn, helps to attract customers, lowering costs and growing revenues (and profits) even more.
So you can see why this idea might appeal to Rocket Lab.
It also doesn't hurt that the size of the global space launch market is estimated at $10 billion, whereas the market for space-based services such as Earth observation and communications could reach $320 billion. Leveraging Neutron to build a satellite constellation and enter a much bigger total addressable market seems a wise move for Rocket Lab.
Image source: NASA.
Two solutions for Rocket Lab
In its report, Payload hedges on whether Rocket Lab would be better advised to create its own constellation of satellites de novo, or buy an existing satellite business doing either Earth observation (such as Maxar) or satellite communications (such as OneWeb or AST SpaceMobile (ASTS -6.02%)). Ultimately, the research service concludes the decision may come down to price: Should space stocks crash, bargains may emerge, and Rocket Lab would be in a great position to know which businesses are most likely to thrive after a crash -- and buy them.
Alternatively, "if valuations are too rich, Rocket Lab may elect to leverage its space systems divisions and satellite platform to build [its own] constellation from scratch."
Both options hold risk -- the risk of overpaying for an acquisition, or the risk of sinking capital spending into a new business for which there's not much demand. Both options also, however, hold the potential for rich rewards: a $320 billion market opportunity. As a Rocket Lab shareholder, I'll be very interested in seeing which way Rocket Lab ultimately decides to go.
Because I'm pretty sure Rocket Lab will in fact go one of these routes.
