Why Rocket Lab Popped, Then Dropped Today

Rocket Lab (NASDAQ: RKLB) stock took investors on a wild ride on Wednesday. Spiking more than 11% in pre-market trading, and still up nearly 9% as the market opened, shares of the space stock have fallen steadily in the hours since. As of 11:35 a.m. ET, Rocket Lab stock remains only barely in the green -- up 0.5%.

But what made Rocket Lab stock rise in the first place, and why has it given up most of its gains?

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Rocket Lab's good news

We'll begin with the good news: First, Rocket Lab is buying its German subcontractor Mynaric AG, a maker of laser communication devices for long-distance data transmission in space, in the air, and on land.

Rocket Lab will pay $75 million up front, plus a potential $75 million "earn-out" over time, assuming Mynaric's business performs as expected.

And second, Rocket Lab announced this morning that aerospace giant Airbus (OTC: EADSY) has signed a contract to have Rocket Lab supply 200 "space grade solar panels for 100 OneWeb Low Earth Orbit (LEO) satellites" that Airbus is building for Eutelsat.

No value was stated for this contract, however, so we don't know how much Rocket Lab will be paid for its panels.

Now the bad news

The sudden need to come up with $75 million, and perhaps $150 million to pay for Mynaric, does pose an additional cash demand upon Rocket Lab. To help the company meet it, Rocket Lab announced yesterday it may need to issue and sell up to $500 million in new shares.

Rocket Lab didn't say for certain that it will issue the new shares. Some or all of the Mynaric purchase price may end up being paid in Rocket Lab stock, and the company does have more than $400 million in cash on its balance sheet today (alongside $475 million in debt). Raising $500 million at today's share price, however, would imply the issuance of nearly 28 million shares, diluting current shareholders by about 6%.

Presumably, this is why Rocket Lab gave up its gains today.

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