RocketLab’s Neutron Update, On Holdings Earnings, and the eVTOL Rivalry Heats Up

**Tyler Crowe** (0:02)
RocketLab investors are still waiting on the pad. Motley Fool Hidden Gems Investing starts now.
Welcome to Motley Fool Hidden Gems Investing. I'm your host, Tyler Crowe, and today I'm joined by long time Fool contributors, Travis Hoium and Matt Frankel. Little bit of a end of the summer sort of mix up as everyone gets those last minute vacations in for kids go back to school. So earnings are still coming in. We're starting to wind down the earning season, but we still got a couple coming online. We've got ON Holdings report. We're going to talk about the state of the electric vertical takeoff and landing industry because there's been a lot of moves lately. But we're going to start today with RocketLab's earnings, which came in yesterday, but obviously didn't get a chance to talk about it yesterday. Share's RocketLab are down a little bit, about 2% as we're taping after earnings. But let's be real, earnings wasn't really the topic du jour. I went through the earnings call transcript and the word Neutron appeared in the conference call 61 times.
Iridium, which is the acquisition it just made, came up 30 times and only 17 times for Electron, the rocket they're actually used to generate those earnings. So guys, what did you see in the report and what were some of your reactions?

**Matt Frankel** (1:08)
I'm here because my kids started school today. I'll go ahead and say that we start early in the South. RocketLab's numbers, like you said, this real story is not the current revenue and the current profitability. But let's start there.
So RocketLab's numbers were strong on the top line. Revenue was a little more than expected. Backlog grew a lot faster than expected, more than doubling year over year. The bottom line missed. It was a little bit of a wider loss than investors had expected and that matters because the company is not profitable yet. Investors are skeptical about their near-term path to profitability.
This is a company that has a roughly $50 billion market cap. So a larger than expected cash burn is justifiably a concern for investors and that's especially considering that the Neutron, which you correctly mentioned, it's secured 61 times in the conference call, it still hasn't gotten off the ground. Investors want to know that they're going to get the profitability without having to raise a ton more capital at this point.

**Travis Hoium** (2:03)
Yeah, I think this is a story that we've seen over and over again this earnings season.
What is expectations and then what's reality? If you actually just take a step back and look at RocketLab, the stock's up 1,100% over the past three years. So it's been a phenomenal run. Let's not take one day as too much of a positive or a negative, but Matt mentioned $50 billion market cap, $2.36 billion in backlog. That is a very small fraction of that market cap. So investors have very high expectations. Any sort of blip in, you know what, we may be a little bit delayed, has been just a hammered by the market. So I'm actually a little bit surprised that the market's not reacting a little bit more negatively since this is such a long-term growth story. Anything that pushes that revenue out is going to be a negative, but they're really trying to convince investors the reason that they're talking about these next-generation products, about their acquisition of Iridium is because they're trying to solidify that business model and sort of vertically integrate, show that they're going to be able to generate that value of long-term. So they're still trying to convince investors. It's a little bit surprising that it's just a little bit of a ho-hum reaction from the market today.

**Tyler Crowe** (3:09)
The Iridium deal is like a what we can be sort of investment that they're making, but at the same time, Iridium is a cash-generative business. So you can kind of stem the cash burn that's been having the rest of the business. You can use that to kind of maybe short the balance sheet a little bit. It's not going to solve all those problems, but it's certainly going to be a nice salve for what we've seen so far. Now, let's broaden out the lens a little bit here because there's some key things that have been happening in the space industry.
I'm not even mentioning like, yeah, SpaceX did an IPO and everyone's been talking about space, but there's a lot of trends to watch in space recently. It's part of the reason why people are so excited about investing in space. We've got the Golden Dome, this major defense space investment priority at Pentagon. We've got a new international space station and then just a lot of commercial interests going on. So with all of this in mind and yes, the space industry is kind of combed over in terms of investment at this point, but where do you see some of the compelling investment opportunities in this particular space?