Rocket Lab (NASDAQ:RKLB) shares moved higher in premarket trading on Wednesday after the company announced a $266 million contract awarded to its U.S. subsidiary by the Air Force. The stock advanced 3.8% in after-hours activity, building on a 5.1% gain from Tuesday's regular session.
The contract, awarded by the U.S. Department of War, covers 12 suborbital launch vehicles with an option for up to six additional launches. However, only $112 million has been obligated at the time of the award, a detail that investors are closely watching. The work must be completed by December 31, 2028, at the Pacific Spaceport Complex in Alaska. Three companies submitted bids for the contract.
The division of funding is a key consideration for market participants. While the headline value of $266 million increases Rocket Lab's involvement in defense, it does not translate to immediate revenue. The initial value per potential launch is approximately $14.8 million, compared with $9.5 million in the company's March HASTE contract with the Air Force. HASTE is Rocket Lab's suborbital platform designed for hypersonic and related flight test operations.
Rocket Lab's March HASTE contract provides the nearest public comparison. That deal had a headline value of $190 million, covering 20 base launches with up to 20 maximum stated launches. The July contract's headline value is 55.6% higher than the March reference, though mission details could vary. The March contract was headed by Kratos Defense & Security Solutions Inc. (NASDAQ:KTOS). Rocket Lab CEO Sir Peter Beck stated at the time that "mass production of our HASTE hypersonic rockets" is making it possible to accelerate testing.
Rocket Lab reported a backlog of $2.2 billion as of the end of March. Revenue for the first quarter came to $200.3 million. The total value of the new award represents 12.1% of that backlog, with immediate funding making up 5.1%. The contract is valued at 1.3 times the revenue for a single quarter. Its performance period lasts until late 2028, but details on revenue timing were not provided.
By Tuesday's close, the award represented roughly 0.6% of Rocket Lab's $41.35 billion market capitalisation. The difference indicates investors see strategic endorsement and possible recurring demand. The stock ended Tuesday at $69.12, rising 5.1%. In delayed premarket trading, it was last indicated at $71.76. Over the preceding calendar week, the shares dropped 16.6%, moving from $81.04 down to $67.62.
In the coming week, investors are set to monitor how the backlog for the contract is managed. Optional launches could lead to the total booked figure staying under $266 million. Rocket Lab's upcoming Electron mission, titled "The Grain Goddess Provides," is still marked as TBD.
Risks to consider include the significance of execution costs rising under fixed pricing. Six launches are not guaranteed, with timing of related revenue still unclear. The proposed $8 billion purchase of Iridium Communications Inc. (NASDAQ:IRDM) introduces uncertainties around financing and integration. The award boosts Rocket Lab's credentials for defense launches. However, until additional commitments are secured, the $266 million represents face value rather than immediate funding.
