RKLB

Rocket Lab Steps In to Fix Astra's Mistake

Astra Space may be falling apart.

One of a slew of new space companies that went public during the pandemic, Astra introduced itself to investors via SPAC IPO in 2021 at the usual SPAC valuation of $10 a share -- but it has since lost 95% of that value.

On Friday, Astra's chief engineer and executive VP of operations Benjamin Lyon resigned "to pursue another professional opportunity" after the company lost nearly $200 million on less than $3 million in revenue in the third quarter -- and announced it would lay off 16% of its staff. Astra says it is cutting expenses and focusing on "primary near-term objectives" such as selling "Astra Spacecraft Engines" to other companies.

What Astra is not doing, for the time being, is trying to launch satellites for NASA.

Chalk drawing of a rocket ship launching over the numbers 2023.

Image source: Getty Images.

Easy come, easy go

Last year if you recall, Astra received a vote of confidence from the National Aeronautics and Space Administration (NASA), which awarded the space start-up a contract to launch three sets of "TROPICS" (Time-Resolved Observations of Precipitation structure and storm Intensity with a Constellation of SmallSats) weather satellites for $8 million.

The first of these launches, carrying two TROPICS CubeSats, took place on June 12, 2022. It ended in failure when the Astra Rocket 3's second stage shut down prematurely, destroying both satellites.

Not to worry, said NASA. The TROPICS constellation could still perform its mission of monitoring tropical cyclones so long as the remaining four CubeSats made it into orbit. However, soon after its initial failure, Astra announced that instead of trying again with a second pair of TROPICS satellites, it was abandoning the Rocket 3 launch vehicle in favor of an as-yet-uncompleted design, to be known as Rocket 4 -- which will be more powerful than what's needed to launch a handful of CubeSats. By September, Astra had confirmed that it was pulling out of the TROPICS contract entirely and would not launch the remaining satellites after all.

But Rocket Lab (NASDAQ: RKLB) will.

Rocket Lab to the rescue

Stepping in to fill the gap left by its competitor, small rocket company Rocket Lab announced late last month that it has agreed to put the remaining TROPICS CubeSats into orbit for NASA. Rocket Lab will conduct a pair of launches out of Wallops Island, Virginia, early next year (2023).

Neither NASA nor Rocket Lab said what the company's fee would be for this service. Presumably, it will be at least what's left over from Astra's $8 million. Considering that Rocket Lab launches ordinarily price out at $7.5 million per launch, it's likely that Astra's dropping out of the contract will cost NASA some extra money.

That's OK, though. Whatever the final cost, it won't be enough to break the bank. NASA does have a $29.2 billion budget to work with, after all. For Rocket Lab, though, the extra $8 million, or $15 million, in revenue will be more than welcome, amounting to as much as 8% of the company's annual revenue stream.

Space stocks shakeout

More important to Rocket Lab than just the money alone, I think, is the fact that when Astra left NASA in the lurch, and the space agency had a dozen other companies it could choose from to pick up the slack -- it chose Rocket Lab. Not SpaceX, Northrop Grumman, or even Spaceflight Inc. -- all of which, like Rocket Lab and Astra, are listed as providers of "Venture-Class Acquisition of Dedicated and Rideshare" (VADR) launches. NASA chose Rocket Lab over all of these alternatives.

That's a big vote of confidence that NASA gave the company. It's not an unwarranted vote of confidence, given that Rocket Lab has completed more than 30 successful space launches. But still, for investors who've seen a lot of space SPACs come close to flaming out over the past month, as companies like Spire Global, Redwire -- and Astra, and Rocket Lab, too -- reported continued quarterly losses, it's nice to see that, in Rocket Lab's case at least, NASA seems to think this company has a good chance of sticking around and getting the job done.

With most analysts forecasting it will be at least three more years before Rocket Lab starts generating the cash flow it needs to be self-sustaining, we'll need every such vote of confidence we can get to keep the faith and stick with this stock till it reaches profitability.

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Rich Smith has positions in Rocket Lab Usa. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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