Here's Why Rocket Lab Wants Nasa To Pay It $4 Billion

NASA wants to go to Mars again -- and this time, bring back rocks.

With a plan that America's premier space agency describes as its "most ambitious, multi-mission campaign," it intends to send a spacecraft into orbit around the Red Planet, from which it would drop a retrieval craft to the surface to collect soil and air samples collected previously by the Perseverance Rover. The retrieval craft would then transfer its treasures to a smaller rocket, which would carry them to orbit and rendezvous with yet another rocket for return to Earth, where yet another lander would return the samples to NASA and the European Space Agency for study.

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It's an ambitious plan, and the details are still being worked out. However, NASA has already identified a few problems with the Mars Sample Return (MSR) mission. To be precise, about 11 billion problems.

$11 billion and 15 years

An April 2024 review of the project by NASA determined that MSR as laid out was likely to cost between $8 billion and $11 billion, and take until 2040 to complete. NASA Administrator Bill Nelson said that was "too expensive and ... unacceptably too long." So NASA asked several companies to come up with approaches to the mission that would be cheaper and faster to complete.

One space company that stepped up to offer a better plan was Rocket Lab (NASDAQ: RKLB). Last year, the small rocket company bid for and won a contract of unspecified value to try to figure out how to save NASA some money with a "simplified, end-to-end mission concept that would be delivered for a fraction of the current projected program cost and completed several years earlier than the current expected sample return date in 2040."

Rocket Lab wasn't the only bidder. As SpaceNews reported in October, as many as a dozen different companies, including heavyweights such as privately owned Blue Origin and SpaceX, and publicly traded L3Harris (NYSE: LHX), also submitted proposals to NASA for studies. This abundance of choices, however, seems to have confused rather than clarified matters. Rather than making a decision, NASA has decided to delay the MSR mission a while longer and ponder its choices for the next 18 months.

Rocket Lab to the rescue?

Admittedly, with potentially half its annual budget at stake, NASA probably should be careful about awarding an MSR contract. Still, the obvious risk of taking so long to make a decision is that it risks pushing the completion of the mission out past even the "unacceptably too long" original target date of 2040.

With that in mind, Rocket Lab this week urged NASA to immediately launch an official commercial competition for MSR, and open up the project to competing bids. As Rocket Lab argues, other companies' proposals will probably cost between $5.8 billion and $7.7 billion, and won't be ready to go until at least 2035, maybe as long as 2039.

Rocket Lab, in contrast, says it can take NASA to Mars and back for "less than $4 billion and as early as 2031."

What MSR means for Rocket Lab investors

Promises, of course, are easy, while space is famously hard. Still, if Rocket Lab is able to deliver what it's promising, the company would appear to be in pole position in the MSR race. It's literally offering NASA a solution that's both cheaper than anyone else -- even SpaceX -- would charge, and four to eight years faster to boot.

This would seem to make Rocket Lab the odds-on favorite to eventually win the contract for the MSR mission. For shareholders, this would be astoundingly good news. Why? Well, consider that over the last 12 months, all of the revenue produced by Rocket Labs' two main divisions amounted to less than $365 million. A $4 billion MSR contract would amount to more than 10 years' worth of revenues for the company, booked over a period of barely five years.

More than that, $4 billion is more money than Rocket Lab is expected to produce in annual revenue by any analyst following the company tracked on S&P Global Market Intelligence, in any year, all the way out to 2031.

In addition to being a high-prestige project, the MSR mission has the potential to totally transform Rocket Lab's revenue picture. While success is not assured, and even getting a decision out of NASA could take years, the potential that Rocket Lab could win the contract goes a long way toward making Rocket Lab stock a buy in my book.

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Rich Smith has positions in Rocket Lab USA. The Motley Fool has positions in and recommends L3Harris Technologies. The Motley Fool recommends Rocket Lab USA. The Motley Fool has a disclosure policy.