RocketLab’s Neutron Update, On Holdings Earnings, and the eVTOL Rivalry Heats Up - Motley Fool Hidden Gems Investing

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[00:02]
A
Rocket Lab 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 longtime fool contributors Travis Hoyam and Matt Frankel. A little bit of a end of the summer sort of mix up as everyone gets those last minute vacations in before kids go back to school. So earnings are still coming in. We're starting to wind down the earnings season, but we still got a couple coming online. We had on holdings report 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 Rocket Lab's earnings, which came in yesterday but obviously didn't get a chance to talk about it yesterday. Shares of Rocket Lab are down a little 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. You know, 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?
[01:09]
B
I'm here because my kids started school today. I'll go ahead and say that we start early in the South Rocket Labs numbers. Like you said, this real story is not the current revenue and the current profitability, but let's start there. So Rocket Lab's numbers were strong on the top line. Revenue was a little more than expected. The backlog grew a lot faster than expected, more than doubling year over year 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 appeared 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.
[02:03]
C
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 Rocket Lab and 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 you know, 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 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. You know, anything that pushes that revenue out is gonna 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 long term. So it's still, 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.
[03:10]
A
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 for the rest of the business. You can use that to kind of maybe sharp 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 and I'm not even mentioning like yeah, SpaceX did an IPO and everyone's been talking about space, but there's a lot of like trends to watch in space recently. And 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 Pentagon, we've got the 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?
[04:11]
C
I don't know that anything is necessarily compelling to me right now from a valuation perspective, but I Do definitely want to watch. What's the reality for these companies. If you look at a company like an AST Space Mobile, a lot of hype behind that business. Are people actually going to sign up for a satellite connection for their phone? Is that going to be included in your plan? If you're on Verizon or AT&T, what is the real business model behind it? Because we're currently in this phase of hey, more rockets going up, more payload, more revenue for these rocket companies. All of this is great. We're not at the there, there yet point, but we're getting really close where these companies are going to have to start showing revenue margin whether they have pricing power or not. So that's what I'm keeping an eye on. I don't have many or any investments in this space at this point, but I'm intrigued by the potential for growth. I just think we may be set for kind of a pullback when we get to that reality point.
[05:07]
B
I agree with Travis that the valuations pretty much anywhere in the space economy aren't terribly attractive right now. There are some long term trends that I think have a lot of potential. I mean, it sounded kind of ridiculous when I first started, I have to admit, but the data centers in space thing sounds pretty cool and like it could really be a solution to a lot of the problems that we're going to face. But of the things you mentioned, I'd say that Golden Dome is really the most investable on a near term basis, at least in my mind now. Deck, call it a defense play, call it a space play, call it what you will, depending on the scope and the timeline. I mean, estimates have ranged from anywhere from 175 billion to 1.2 trillion in total spending. And unlike a lot of the other things we're talking about, there are already real contracts being awarded, real money changing hands. It's a theme that has money moving now and there are some real legitimate cash flowing businesses that have a big piece of it.
[05:57]
A
I can't help but whenever I hear data centers in space, this is not for anything investment related, but every single time I hear it, I just hear that Muppet show pigs in space sort of thing. And it's like that big cry at the end, hopefully. I know it dates me incredibly as like an old person talking about the 1970s Muppet show, but I don't know why. Just kind of etched in my brain. Coming up after the break, we're going to kind of come back down to earth a little bit. We're Going to take a look at on holdings, earnings.
[06:27]
D
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[07:39]
A
Shares of shoe retailer, well, call it Athletic Athleisure Apparel Footwear, a company on holding their shares are down about 18.8% after the company reported earnings earlier this morning. I mean, 18% sounds awful, but seems like this quarter that's just. That's what everything happens these days when we. When we report earnings, either everything jumps 20% or down 15% and then three days later we're just right back where we were. We'll see if that happens here. But Travis, I know you follow this company a lot, so give me the rundown. What did you see? Maybe the 18% is just another blip or was there actually something that might justify why the market is thinking this?
[08:16]
C
Well, the justification, at least short term, is that their guidance was relatively weak. So if we look at the results and now on always reports in Swiss francs, which makes their results really confusing for investors because you look at revenue was up 13.5% in the quarter. That doesn't sound all that impressive. But on a constant currency basis, it was actually 21.6%. So it's always important to look at those constant currency numbers because most of their sales are in the US So a weak dollar is going to make those sales look smaller when you look through the lens of a Swiss franc. But what investors are really focused on right now is that their guidance for the rest of the year was down a little bit. So they're expecting growth in the low 20% range instead of, I believe it was 23% plus that they said last quarter. That's telling you that maybe the consumer's a little bit weaker, maybe they're losing a little bit of market share. If we're having some sort of recovery with Nike, I don't think we're seeing that yet. The interesting thing for on is that they have made a explicit decision to keep their pricing power. I mean their margins are phenomenal. They're expecting a gross profit margin to be at least 65%. That is just crazy in an apparel business. So they're saying, you know what, we're going to focus on this profitability, we're going to give up growth. As a result, the market's reacting negatively to that today. But you could look back at the last five years or so with Nike, the last five years at Lululemon and see that, you know what, it's a slippery slope going down the I'm going to start discounting my products, give people a little bit better price to move sales, to move volume, to increase that sales number on says that they don't want to do that. Strategically I think that's probably a good move long term. But it also means if your growth is a little bit slower, those growth investors are going to be disappointed even if the profitability is going to be a little bit better than maybe we thought it was when the company was growing faster. So a lot of trade offs that they're making. What we don't know, like I said based on some of those competitors is how many of those are macro trade offs and how many of those are
[10:12]
B
on specific as Travis said, to sum that up, on beat on earnings, they missed on revenue sales were somewhat disappointing, especially on the wholesale side, which they framed as they did that on purpose and maybe they did, but margins expanded more than expected. Their gross margin, their adjusted EBITDA margin were both pretty impressive compared to a year ago. The big geographical disparity in the results. The Asia Pacific sales grew 55%. All of this is in constant currency, by the way, to not confuse anybody. And in the Americas it was 13% in constant currency. So, you know, big sales disparity. America's, there's, it's still their core market, but you're really seeing kind of a Slowdown in the strange consumer in America and things like that. The real reason for the decline, as he mentioned, was the guidance, a guidance reduction. At the same time a company reports a big revenue miss, it kind of causes investors to take a step back and consider whether this growth story, which admittedly has been, you know, stellar for years, could be slowing down a little quicker than expected.
[11:09]
A
So one of the things that stood out to me Travis, you were talking about gross margins and being so strong. I think part of the reason they do that is that on one of their strengths is direct to consumer channel sales, you know, their own website, not necessarily going to doing things wholesales at like a Dick's Sporting good nearly as much relative to a lot of the other companies. You know, it mentioned DTC sales were up more than its overall growth numbers, which does tend to explain a little bit on that higher margins because that tends to be a higher margin sale. What I find interesting about this point is kind of comparing it to like Nike and Adidas and companies like that where the other larger companies which haven't been as successful with DTC channels relative to them, they're still trying to work really hard with the dick sportings goods, the foot lockers, the companies that you end up doing a wholesale, it's larger volume but much lower margin. So my question is whether like DTC sales, is this just how new companies that grow up in the age of the Internet, in the age of dtc, is this just how it's going to be or can on actually get to the scale of a Nike or Adidas relying heavily on this DTC model? Or is there going to be some point where like that channel starts to kind of limit growth and it will have to push into those other channels more.
[12:24]
C
They're definitely not going to reach the scale of Nike. I mean I think, you know, we all similar ages, you know, growing up in the late 80s and into the 90s, Nike was kind of everywhere and the model there has just completely shifted because you're going from a supply driven environment where the supply is the power, the having, you know, Jordan as a sponsorship, having TV commercials, all that kind of stuff. Everybody was wearing Nike. Now you're in much more of a case where there can be individualized ads with those direct to consumer sales on Instagram or on Google, where Matt's going to see a different ad from me and we're going to maybe buy different products as a result. So I think there is going to be more of kind of a disparate market. And the question for these companies is going to be where do you fit in that market and what is your scale going to be? You're right that ON may be reaching a point where this isn't going to be a 30% compounding company anymore. But if they can compound their revenue growth at 15 to 20% and do so at a really, really high margin, that can still be really phenomenal business. I think when you're looking at on holding, when you're looking at Nike or Lululemon, the question you have to ask yourself is what are they going to be and what are they showing themselves to be on? Showed you this quarter. Hey, all that talk that we had about pricing power, about keeping margins high, that's exactly what we're doing. And what we're doing is we're giving up sales as a result. But that means that in five years this is still going to be a premium brand. They're not going to go down that slippery slope of Under Armour, for example, which has been disastrous for investors. So when you get to that DTC world, you've got to look at, yes, yes, the, the pie is smaller for an on holding to reach, but as long as you're reaching the customers at a very profitable level, that can still be a really phenomenal business. So it's a little bit of both. And I don't necessarily think that that means that they're going to give up sales or give up margin long term. It's just a very different business than you had in the 80s and 90s when a lot of these other companies were growing up.
[14:20]
B
Speaking of these companies growing up like the three of us, Nike came up in a different era. The tools to grow direct to consumer relationships didn't exist yet. I don't remember anyone being on the Internet back in the late 80s. It was a thing, but it wasn't commercialized yet.
[14:35]
C
Yeah, there weren't Nike ads on Prodigy back then.
[14:38]
B
Right. The TV didn't show you a targeted ad. It didn't exist yet. Direct to consumer was the JCPenney catalog. At the time, that was the closest thing we had to direct to consumer tools. Its identity was formed completely on its wholesale relationships. Companies these days have more control. Direct to Consumer gives a company more control over pricing, over margins. That's why we kind of mentioned that on holding is somewhat engineering its margins right now. Deliberately. By pumping the brakes on wholesale, it can control its brand image better. That's how you maintain that premium brand that On's doing. But I will say that a little more than Travis I feel like the direct to consumer model is going to have more limits at scale when it comes to building out your own stores, building out your fulfillment logistics, especially things like that. And it's going to come to a point where on holding is going to have to make a choice, become a value stock that's growing at 10 to 15% annually, which it's approaching value stock territory right now, if I'm being totally honest. Or maintain a 30% plus growth rate but really lean into wholesale and give up a lot of your margins, they're going to have to kind of compromise a little bit within at some point and I'm not sure what direction they're going to go. So far I can't argue with anything they've done strategically. So I have no doubt that they're going to make the right call. But it's going to be more of a balancing act. I think over the next five years.
[15:53]
A
The holding, the price thing always works out until all of a sudden there's a lot of inventory building up on the balance sheet and then you start to see a little bit more of that wholesale moving stuff maybe in channels that they don't expect. So it seems as long as on can kind of keep that inventory supply chain working efficiently and not having a lot of stuff build up on the balance sheet should work. So before we go, Travis, I know you're a fan of the company, also a fan of the shoes. What's the most recent on purchase you've had?
[16:22]
C
I've got these new slip on shoes where the back folds down a little bit. Like I don't know if you like a Kizzix be kind of an example. So it's like a croc if you want it to be or a shoe if you want it to be. They're a little goofy, but I don't know, I'm liking them so far.
[16:35]
B
Did you buy them wholesale or direct to consumer?
[16:37]
C
Direct to consumer, absolutely.
[16:39]
A
There you go. Coming up after the break, we're going to look at the moving and shaking in the evtol industry.
[16:46]
D
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[18:47]
A
It's been a minute since the last time we had two companies persistently engaged in a game of anything you can do, I can do better than electric vertical takeoff and landing companies like Archer Aviation and Joby Aviation. That's not even counting like the numerous times both have dragged each other into the court for various reasons, one suing the other for patent, whatever, stealing stuff. It's been quite a dramatic past couple of year or two. Now it's only Tuesday, but we've already seen both companies announce significant acquisitions. So again, one does one thing, the other's got to react. Archer announced a deal with Boeing to take over its EVTOL and several of its other non core Boeing properties. And Then less than 24 hours later Joby announced it's acquiring a defense contractor, Renaissance Sciences. So guys, I asked you guys to each know pick one of the deals and give us a quick rundown in the reactions that you guys saw for
[19:36]
B
each of the deals Archer Steel, the market really liked it. It seems like the stock was up roughly 20% afterwards that you mentioned. They're acquiring three Boeing subsidiaries. There's the EVTOL developer. There's one company that makes air traffic management software, one that makes defense drones. That's actually a very profitable business already. It's an all stock deal. So this didn't cost them any money. Gives Boeing a stake of nearly 20% in Archer, including some warrants that it's getting. And from a strategic standpoint, it makes a lot of sense for both companies. I mentioned one of the ACQU properties called In Situ. It's the drone maker. They're already profitable. They have over $200 million of annual revenue. Archer is mostly a pre revenue company other than like some grants and research funding and things like that. So this is a big deal when it comes to, I don't want to even say revenue diversification, but just having some. It also gets a fully autonomous EVTOL design that it didn't have to design itself that was designed by Boeing, which, you know, you can't really get mad at that. From Boeing's perspective, it gets rid of a lot of some of its non core properties that it was still holding and can focus more of its efforts on its core aircraft business, commercial and military. It gets long term upside from the Archer stake if these businesses turn out to be something. So it's getting rid of these businesses but still getting financial benefit from them. So investors seem to like the deal. It makes Archer a much more credible defense sector player. And like I said, it adds some real revenue to a balance sheet that really needs it.
[20:55]
C
Yeah, the reaction to Archers was positive and that's generally been the case when Archer makes these press releases and they're really good at the press release games. But you look at since the beginning of 2025, Joby Aviation has outperformed Archer. And the reason for that I think was Joby was the more focused company. We knew what they were going to be doing. They were going to be flying their aircraft with commercial passengers before Archer, potentially more than a year before Archer Aviation. So this was really a company that was scaling in the vertical takeoff and landing with air taxis. So building out, they bought a company called Blade last year, Blades, currently running helicopters. We could just imagine just fitting in an EVTOL aircraft and then taking that from, you know, LaGuardia to Manhattan, for example. The interesting thing with this deal is this $500 million acquisition, so a much smaller acquisition, $450 million of it in cash. Only 50 million in stock, but it does move Joby more into the defense space. Now, what they said in the release is that this is actually going to become their new defense business and we're going to kind of, kind of have two separate divisions because I think that they're worried about what exactly what I said earlier. Hey, where you're not a focused company anymore. We thought you were an air taxi company and now you're a defense contractor. So I think the idea here is just like with Archer's acquisition, you are bringing in, you know, $100 million worth of revenue. It is a growth company. It can kind of operate on its own and yet still have a little bit of that optionality in the defense side. But for Joby, I think the bigger question to me is what does this company want to be long term? And if the answer is you want to be a big air taxi company, then just focus on that. Don't take that $450 million and put it into a defense contractor. Put it into scaling out your business and becoming their taxi company. But, you know, the market's reaction. Ironically, loved Archer yesterday. Pretty ho hum on this Joby deal today. Stocks down about 3%.
[22:47]
A
Two quick notes and things that I noticed with both of these deals. For one, Boeing sold them an autonomous EVTOL design, but kept the autonomous software for themselves. So interesting little fold in that development. And also in the Joby press release, I was very surprised how much they were Talking about acquiring 1 million square foot of manufacturing space. Kind of almost as a little bit of, yeah, we bought a defense business, but look at all this manufacturing space we have now. So we can start to scale up. Maybe that was just to your point, trying to stay focused and saying, that's what we got, but we'll see. So here was my takeaway from kind of both of these announcements. It appears to be a deliberate move to diversify the holdings. And is this kind of an admission that this EVTOL deployment commercial air taxi business is much harder than initially expected and will likely take a lot longer?
[23:39]
B
I would call it more hedging against the possibility that EVTOLs could take longer than originally thought. Not necessarily an admission that they will both say that they're still on track to reach some key milestones they set this year. But it's true that anytime you're building a new category of a vehicle that flies, I mean, look at Rocket Lab, it's a perfect example. It generally has taken longer and cost more money than originally expected. So it makes sense that investors are somewhat getting impatient with these essentially being pre revenue businesses. But I think they're still on track to deliver the product that they promised. Just, you know, maybe a year or three later than they originally thought.
[24:14]
C
I actually think that this shows that they are trying to diversify a business and not scaling that core business as quickly as they potentially could. And that's where I have a lot more questions than answers, especially on the Joby side, because Joby actually wants to have potentially commercial passengers in 2026. I mean, they're potentially going to be operating in Texas in 2026, definitely in 2027. So they do not have enough capacity to actually scale that operation today. I don't know where Defense fits into that. You know, you could read into both of these deals, I think, and say that the bigger piece of it is actually autonomy. And they're looking at five or 10 years down the road and going, you know what? We don't even want to have a pilot in these aircraft. We want them to fly fully autonomously. And so we need to build these software pieces by the sensors. That's part of the Joby deal. But I think there's a lot to play out here. We'll get a little bit more information from both. Joby has a presentation for investors after the market closes today. But I think this just does add a lot more questions because they're trying to be both commercial companies and defense contractors. And it's really hard to do both when you don't have either completed at this point.
[25:25]
A
It's definitely a wait and see sort of approach. I can see the logic on wanting to get into the defense business. It's steady, it's cash, generative. You can use that to fund some of the stuff and maybe give yourself a lifeline and not have to go to the capital markets after issuing a slew of press releases just to, you know, pump your stock up enough to make it worthwhile. So we'll see. Again, the thing that scared me the most is when Matt said a year or three. I don't think a lot of investors would be too excited when they hear, well, we're three years behind. I think one year maybe enough. That's all the time we have for today. I'm going to have disclosure when we get out here. As always, people on the program may have interest in the stock that we talked about and the Motley fool may have formal recommendations for again. So don't buy or sell stocks. We solely with a year. All personal finance content follows Motley fool editorial standards. And is not approved by advertisers. Advertisements are sponsored content provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks to producer Christy Wadeworth and the rest of the Motley fool team from Matt Travis and myself. Thanks for listening and we'll chat again soon.

Summary7 min read

Motley Fool Hidden Gems Investing

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

Date: August 12, 2026
Host: Tyler Crowe
Guests: Travis Hoyam & Matt Frankel

Episode Overview

This episode tackles three timely topics for long-term investors:

The latest earnings report and strategic outlook for Rocket Lab, particularly focusing on the much-anticipated Neutron rocket and the Iridium acquisition.
On Holdings’ earnings, the athleisure brand’s strategic decision-making around growth, margins, and the direct-to-consumer (DTC) model.
Dramatic new moves in the electric vertical takeoff and landing (eVTOL) industry, with both Archer Aviation and Joby Aviation making major acquisitions – shifting the competitive landscape and raising questions about the sector’s future.

The tone is insightful and relaxed, with a skeptical but open-minded assessment of high-growth and speculative stocks.

1. Rocket Lab: Neutron and Iridium Take Center Stage

[00:02–06:26]

Key Discussion Points:

Rocket Lab’s earnings results showed strong year-over-year revenue growth and a growing backlog, but a wider-than-expected bottom line loss.
The central focus of the earnings call (literally – the word “Neutron” was mentioned 61 times, vs. “Electron” just 17 times) was the company’s next-generation Neutron rocket, which has yet to launch.
Investor concerns center on cash burn and the extended timeline to profitability; the recent acquisition of Iridium is partly seen as a way to stabilize finances thanks to Iridium's cash-generative business.

Notable Insights:

Matt: “Revenue was a little more than expected. The backlog grew a lot faster than expected...” (01:08)
Travis: “This is a story that we've seen over and over again this earnings season. What is expectations and then what's reality? ... The stock's up 1,100% over the past three years.” (02:02)
The acquisition of Iridium may help Rocket Lab “stem the cash burn” and improve the balance sheet, according to Tyler. (03:09)

Notable Quotes:

Matt: “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.” (01:32)
Travis: “Any sort of blip in, you know what, we may be a little bit delayed, has been just hammered by the market.” (02:26)

Broader Space Industry Take:

The panel is cautious, noting sky-high valuations and warning of a potential “reality check” as companies must soon produce actual revenue and margins.
Commercial and defense spending (the “Golden Dome” initiative) is highlighted as a particularly investable theme, since real contracts and cash flow are already present.

Memorable Moment:

Tyler, humorously reflecting on the phrase “data centers in space”: “...every single time I hear it, I just hear that Muppet show pigs in space sort of thing.” (05:57)

2. On Holdings: Prioritizing Profits over Growth

[07:38–16:38]

Key Discussion Points:

On Holdings’ shares fell nearly 19% after earnings, largely due to lowered forward guidance, not current performance.
Revenue was up 13.5% (21.6% constant currency), but investors focused on growth guidance dropping from “23%+” to “low 20%.”
The company is prioritizing gross profit margins (guidance for at least 65%) over chasing high revenue growth, driven by a focus on the DTC channel.
There’s a debate over whether this strategy limits eventual scale compared to legacy giants like Nike and Adidas, but consensus that a premium-branded niche can still be highly attractive.

Notable Insights:

Travis: “Strategically I think that's probably a good move long term. But it also means if your growth is a little bit slower, those growth investors are going to be disappointed...” (09:31)
Matt: “Big geographical disparity in the results...America's, there's, it's still their core market, but you're really seeing kind of a slowdown in the strange consumer in America and things like that.” (10:44)
Tyler highlights ON’s stronger DTC channel as a source of margin advantage over peers.

DTC Model Discussion:

Travis: “They're definitely not going to reach the scale of Nike...” (12:24)
- The modern market is more fragmented, driven by targeted ads and DTC channels.
Matt: “Direct to Consumer gives a company more control over pricing, over margins. That's why we kind of mentioned that on holding is somewhat engineering its margins right now.” (14:37)
- He cautions that scaling DTC has logistical limits, and ON may need to choose between slower value growth or embracing lower-margin wholesale for faster growth.

Memorable Exchange:

Tyler: “The holding, the price thing always works out until all of a sudden there's a lot of inventory building up on the balance sheet...” (15:53)
Light moment: Travis confesses his recent ON purchase—new slip-on shoes bought DTC, of course. (16:22–16:37)

3. eVTOL Rivalry: Archer vs. Joby – Two Major Acquisitions

[18:47–25:24]

Key Discussion Points:

Archer Aviation acquired three Boeing subsidiaries (including an eVTOL maker, ATC software firm, and a profitable drone business) in an all-stock deal. Boeing now owns head-turning 20% of Archer.
- Adds real revenue and credibility, especially in the defense sector.
- Market reacted very positively: Archer up ~20%.
Joby Aviation bought defense contractor Renaissance Sciences for $500 million (mostly in cash), gaining revenue, defense contracts, and a massive manufacturing facility.
- The market’s reaction was muted or negative: Joby down ~3%.
- Raises questions about focus: will Joby be a pure air taxi company or a diversified defense player?

Strategy Analysis:

Archer is seen as needing revenue/funding as it remains pre-revenue; the move helps diversify and hedge risk, giving Boeing upside if Archer succeeds (19:36–20:55).
Joby’s acquisition could distract from their core air taxi mission, leading to “a lot more questions than answers” (24:13).
The broader interpretation: both companies are hedging their bets, moving into defense as the path to commercial air taxi services looks longer, harder, and riskier than initially thought.

Notable Quotes:

Matt: “It makes Archer a much more credible defense sector player. And like I said, it adds some real revenue to a balance sheet that really needs it.” (20:50)
Travis: “[For Joby,] What does this company want to be long term? And if the answer is you want to be a big air taxi company, then just focus on that.” (21:44)
Matt: “I would call it more hedging against the possibility that EVTOLs could take longer than originally thought. Not necessarily an admission that they will...” (23:38)
Tyler: “The thing that scared me the most is when Matt said a year or three. I don't think a lot of investors would be too excited when they hear, well, we're three years behind.” (25:24)

4. Timestamps for Key Segments

Rocket Lab Earnings & Neutron/Iridium Strategy: 00:02 – 06:26
Broader Space Investing Opportunities: 03:09 – 06:26
On Holdings Earnings and Margin Strategy: 07:38 – 16:38
eVTOL Industry Moves – Archer & Joby: 18:47 – 25:24

5. Notable Quotes (with Timestamps)

On Rocket Lab’s focus:
Matt: “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.” (01:32)
On valuation in the space industry:
Travis: “We may be set for kind of a pullback when we get to that reality point.” (04:11)
On On Holdings’ decision:
Travis: “They're saying, you know what, we're going to focus on this profitability, we're going to give up growth. As a result, the market's reacting negatively to that today.” (09:25)
On DTC limits:
Matt: “…the direct to consumer model is going to have more limits at scale... and it's going to come to a point where on holding is going to have to make a choice, become a value stock that's growing at 10 to 15% annually... Or maintain a 30% plus growth rate but really lean into wholesale and give up a lot of your margins...” (14:43)
On eVTOL expansion risk:
Travis: “What does this company want to be long term?... It's really hard to do both when you don't have either completed at this point.” (24:13)

6. Episode Takeaways

Rocket Lab is betting big on next-gen rockets and acquisitions like Iridium to shift from hope to reality, but timelines are long and losses continue.
On Holdings is choosing high-margin, DTC-driven, premium branding over top-line growth; that makes it a different business than legacy sportswear giants.
The eVTOL rivalry is heating up, but both Archer and Joby are now diversifying into defense, likely signaling the air taxi dream remains a distant, high-stakes bet.

Overall, the episode is a candid, nuanced look at three growth stories, each wrestling with the tension between ambitious vision and the realities of high-stakes execution.

Loading summary

Transcript29 lines

[00:02]
A
Rocket Lab 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 longtime fool contributors Travis Hoyam and Matt Frankel. A little bit of a end of the summer sort of mix up as everyone gets those last minute vacations in before kids go back to school. So earnings are still coming in. We're starting to wind down the earnings season, but we still got a couple coming online. We had on holdings report 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 Rocket Lab's earnings, which came in yesterday but obviously didn't get a chance to talk about it yesterday. Shares of Rocket Lab are down a little 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. You know, 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?
[01:09]
B
I'm here because my kids started school today. I'll go ahead and say that we start early in the South Rocket Labs numbers. Like you said, this real story is not the current revenue and the current profitability, but let's start there. So Rocket Lab's numbers were strong on the top line. Revenue was a little more than expected. The backlog grew a lot faster than expected, more than doubling year over year 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 appeared 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.
[02:03]
C
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 Rocket Lab and 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 you know, 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 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. You know, anything that pushes that revenue out is gonna 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 long term. So it's still, 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.
[03:10]
A
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 for the rest of the business. You can use that to kind of maybe sharp 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 and I'm not even mentioning like yeah, SpaceX did an IPO and everyone's been talking about space, but there's a lot of like trends to watch in space recently. And 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 Pentagon, we've got the 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?
[04:11]
C
I don't know that anything is necessarily compelling to me right now from a valuation perspective, but I Do definitely want to watch. What's the reality for these companies. If you look at a company like an AST Space Mobile, a lot of hype behind that business. Are people actually going to sign up for a satellite connection for their phone? Is that going to be included in your plan? If you're on Verizon or AT&T, what is the real business model behind it? Because we're currently in this phase of hey, more rockets going up, more payload, more revenue for these rocket companies. All of this is great. We're not at the there, there yet point, but we're getting really close where these companies are going to have to start showing revenue margin whether they have pricing power or not. So that's what I'm keeping an eye on. I don't have many or any investments in this space at this point, but I'm intrigued by the potential for growth. I just think we may be set for kind of a pullback when we get to that reality point.
[05:07]
B
I agree with Travis that the valuations pretty much anywhere in the space economy aren't terribly attractive right now. There are some long term trends that I think have a lot of potential. I mean, it sounded kind of ridiculous when I first started, I have to admit, but the data centers in space thing sounds pretty cool and like it could really be a solution to a lot of the problems that we're going to face. But of the things you mentioned, I'd say that Golden Dome is really the most investable on a near term basis, at least in my mind now. Deck, call it a defense play, call it a space play, call it what you will, depending on the scope and the timeline. I mean, estimates have ranged from anywhere from 175 billion to 1.2 trillion in total spending. And unlike a lot of the other things we're talking about, there are already real contracts being awarded, real money changing hands. It's a theme that has money moving now and there are some real legitimate cash flowing businesses that have a big piece of it.
[05:57]
A
I can't help but whenever I hear data centers in space, this is not for anything investment related, but every single time I hear it, I just hear that Muppet show pigs in space sort of thing. And it's like that big cry at the end, hopefully. I know it dates me incredibly as like an old person talking about the 1970s Muppet show, but I don't know why. Just kind of etched in my brain. Coming up after the break, we're going to kind of come back down to earth a little bit. We're Going to take a look at on holdings, earnings.
[06:27]
D
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[07:39]
A
Shares of shoe retailer, well, call it Athletic Athleisure Apparel Footwear, a company on holding their shares are down about 18.8% after the company reported earnings earlier this morning. I mean, 18% sounds awful, but seems like this quarter that's just. That's what everything happens these days when we. When we report earnings, either everything jumps 20% or down 15% and then three days later we're just right back where we were. We'll see if that happens here. But Travis, I know you follow this company a lot, so give me the rundown. What did you see? Maybe the 18% is just another blip or was there actually something that might justify why the market is thinking this?
[08:16]
C
Well, the justification, at least short term, is that their guidance was relatively weak. So if we look at the results and now on always reports in Swiss francs, which makes their results really confusing for investors because you look at revenue was up 13.5% in the quarter. That doesn't sound all that impressive. But on a constant currency basis, it was actually 21.6%. So it's always important to look at those constant currency numbers because most of their sales are in the US So a weak dollar is going to make those sales look smaller when you look through the lens of a Swiss franc. But what investors are really focused on right now is that their guidance for the rest of the year was down a little bit. So they're expecting growth in the low 20% range instead of, I believe it was 23% plus that they said last quarter. That's telling you that maybe the consumer's a little bit weaker, maybe they're losing a little bit of market share. If we're having some sort of recovery with Nike, I don't think we're seeing that yet. The interesting thing for on is that they have made a explicit decision to keep their pricing power. I mean their margins are phenomenal. They're expecting a gross profit margin to be at least 65%. That is just crazy in an apparel business. So they're saying, you know what, we're going to focus on this profitability, we're going to give up growth. As a result, the market's reacting negatively to that today. But you could look back at the last five years or so with Nike, the last five years at Lululemon and see that, you know what, it's a slippery slope going down the I'm going to start discounting my products, give people a little bit better price to move sales, to move volume, to increase that sales number on says that they don't want to do that. Strategically I think that's probably a good move long term. But it also means if your growth is a little bit slower, those growth investors are going to be disappointed even if the profitability is going to be a little bit better than maybe we thought it was when the company was growing faster. So a lot of trade offs that they're making. What we don't know, like I said based on some of those competitors is how many of those are macro trade offs and how many of those are
[10:12]
B
on specific as Travis said, to sum that up, on beat on earnings, they missed on revenue sales were somewhat disappointing, especially on the wholesale side, which they framed as they did that on purpose and maybe they did, but margins expanded more than expected. Their gross margin, their adjusted EBITDA margin were both pretty impressive compared to a year ago. The big geographical disparity in the results. The Asia Pacific sales grew 55%. All of this is in constant currency, by the way, to not confuse anybody. And in the Americas it was 13% in constant currency. So, you know, big sales disparity. America's, there's, it's still their core market, but you're really seeing kind of a Slowdown in the strange consumer in America and things like that. The real reason for the decline, as he mentioned, was the guidance, a guidance reduction. At the same time a company reports a big revenue miss, it kind of causes investors to take a step back and consider whether this growth story, which admittedly has been, you know, stellar for years, could be slowing down a little quicker than expected.
[11:09]
A
So one of the things that stood out to me Travis, you were talking about gross margins and being so strong. I think part of the reason they do that is that on one of their strengths is direct to consumer channel sales, you know, their own website, not necessarily going to doing things wholesales at like a Dick's Sporting good nearly as much relative to a lot of the other companies. You know, it mentioned DTC sales were up more than its overall growth numbers, which does tend to explain a little bit on that higher margins because that tends to be a higher margin sale. What I find interesting about this point is kind of comparing it to like Nike and Adidas and companies like that where the other larger companies which haven't been as successful with DTC channels relative to them, they're still trying to work really hard with the dick sportings goods, the foot lockers, the companies that you end up doing a wholesale, it's larger volume but much lower margin. So my question is whether like DTC sales, is this just how new companies that grow up in the age of the Internet, in the age of dtc, is this just how it's going to be or can on actually get to the scale of a Nike or Adidas relying heavily on this DTC model? Or is there going to be some point where like that channel starts to kind of limit growth and it will have to push into those other channels more.
[12:24]
C
They're definitely not going to reach the scale of Nike. I mean I think, you know, we all similar ages, you know, growing up in the late 80s and into the 90s, Nike was kind of everywhere and the model there has just completely shifted because you're going from a supply driven environment where the supply is the power, the having, you know, Jordan as a sponsorship, having TV commercials, all that kind of stuff. Everybody was wearing Nike. Now you're in much more of a case where there can be individualized ads with those direct to consumer sales on Instagram or on Google, where Matt's going to see a different ad from me and we're going to maybe buy different products as a result. So I think there is going to be more of kind of a disparate market. And the question for these companies is going to be where do you fit in that market and what is your scale going to be? You're right that ON may be reaching a point where this isn't going to be a 30% compounding company anymore. But if they can compound their revenue growth at 15 to 20% and do so at a really, really high margin, that can still be really phenomenal business. I think when you're looking at on holding, when you're looking at Nike or Lululemon, the question you have to ask yourself is what are they going to be and what are they showing themselves to be on? Showed you this quarter. Hey, all that talk that we had about pricing power, about keeping margins high, that's exactly what we're doing. And what we're doing is we're giving up sales as a result. But that means that in five years this is still going to be a premium brand. They're not going to go down that slippery slope of Under Armour, for example, which has been disastrous for investors. So when you get to that DTC world, you've got to look at, yes, yes, the, the pie is smaller for an on holding to reach, but as long as you're reaching the customers at a very profitable level, that can still be a really phenomenal business. So it's a little bit of both. And I don't necessarily think that that means that they're going to give up sales or give up margin long term. It's just a very different business than you had in the 80s and 90s when a lot of these other companies were growing up.
[14:20]
B
Speaking of these companies growing up like the three of us, Nike came up in a different era. The tools to grow direct to consumer relationships didn't exist yet. I don't remember anyone being on the Internet back in the late 80s. It was a thing, but it wasn't commercialized yet.
[14:35]
C
Yeah, there weren't Nike ads on Prodigy back then.
[14:38]
B
Right. The TV didn't show you a targeted ad. It didn't exist yet. Direct to consumer was the JCPenney catalog. At the time, that was the closest thing we had to direct to consumer tools. Its identity was formed completely on its wholesale relationships. Companies these days have more control. Direct to Consumer gives a company more control over pricing, over margins. That's why we kind of mentioned that on holding is somewhat engineering its margins right now. Deliberately. By pumping the brakes on wholesale, it can control its brand image better. That's how you maintain that premium brand that On's doing. But I will say that a little more than Travis I feel like the direct to consumer model is going to have more limits at scale when it comes to building out your own stores, building out your fulfillment logistics, especially things like that. And it's going to come to a point where on holding is going to have to make a choice, become a value stock that's growing at 10 to 15% annually, which it's approaching value stock territory right now, if I'm being totally honest. Or maintain a 30% plus growth rate but really lean into wholesale and give up a lot of your margins, they're going to have to kind of compromise a little bit within at some point and I'm not sure what direction they're going to go. So far I can't argue with anything they've done strategically. So I have no doubt that they're going to make the right call. But it's going to be more of a balancing act. I think over the next five years.
[15:53]
A
The holding, the price thing always works out until all of a sudden there's a lot of inventory building up on the balance sheet and then you start to see a little bit more of that wholesale moving stuff maybe in channels that they don't expect. So it seems as long as on can kind of keep that inventory supply chain working efficiently and not having a lot of stuff build up on the balance sheet should work. So before we go, Travis, I know you're a fan of the company, also a fan of the shoes. What's the most recent on purchase you've had?
[16:22]
C
I've got these new slip on shoes where the back folds down a little bit. Like I don't know if you like a Kizzix be kind of an example. So it's like a croc if you want it to be or a shoe if you want it to be. They're a little goofy, but I don't know, I'm liking them so far.
[16:35]
B
Did you buy them wholesale or direct to consumer?
[16:37]
C
Direct to consumer, absolutely.
[16:39]
A
There you go. Coming up after the break, we're going to look at the moving and shaking in the evtol industry.
[16:46]
D
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[18:47]
A
It's been a minute since the last time we had two companies persistently engaged in a game of anything you can do, I can do better than electric vertical takeoff and landing companies like Archer Aviation and Joby Aviation. That's not even counting like the numerous times both have dragged each other into the court for various reasons, one suing the other for patent, whatever, stealing stuff. It's been quite a dramatic past couple of year or two. Now it's only Tuesday, but we've already seen both companies announce significant acquisitions. So again, one does one thing, the other's got to react. Archer announced a deal with Boeing to take over its EVTOL and several of its other non core Boeing properties. And Then less than 24 hours later Joby announced it's acquiring a defense contractor, Renaissance Sciences. So guys, I asked you guys to each know pick one of the deals and give us a quick rundown in the reactions that you guys saw for
[19:36]
B
each of the deals Archer Steel, the market really liked it. It seems like the stock was up roughly 20% afterwards that you mentioned. They're acquiring three Boeing subsidiaries. There's the EVTOL developer. There's one company that makes air traffic management software, one that makes defense drones. That's actually a very profitable business already. It's an all stock deal. So this didn't cost them any money. Gives Boeing a stake of nearly 20% in Archer, including some warrants that it's getting. And from a strategic standpoint, it makes a lot of sense for both companies. I mentioned one of the ACQU properties called In Situ. It's the drone maker. They're already profitable. They have over $200 million of annual revenue. Archer is mostly a pre revenue company other than like some grants and research funding and things like that. So this is a big deal when it comes to, I don't want to even say revenue diversification, but just having some. It also gets a fully autonomous EVTOL design that it didn't have to design itself that was designed by Boeing, which, you know, you can't really get mad at that. From Boeing's perspective, it gets rid of a lot of some of its non core properties that it was still holding and can focus more of its efforts on its core aircraft business, commercial and military. It gets long term upside from the Archer stake if these businesses turn out to be something. So it's getting rid of these businesses but still getting financial benefit from them. So investors seem to like the deal. It makes Archer a much more credible defense sector player. And like I said, it adds some real revenue to a balance sheet that really needs it.
[20:55]
C
Yeah, the reaction to Archers was positive and that's generally been the case when Archer makes these press releases and they're really good at the press release games. But you look at since the beginning of 2025, Joby Aviation has outperformed Archer. And the reason for that I think was Joby was the more focused company. We knew what they were going to be doing. They were going to be flying their aircraft with commercial passengers before Archer, potentially more than a year before Archer Aviation. So this was really a company that was scaling in the vertical takeoff and landing with air taxis. So building out, they bought a company called Blade last year, Blades, currently running helicopters. We could just imagine just fitting in an EVTOL aircraft and then taking that from, you know, LaGuardia to Manhattan, for example. The interesting thing with this deal is this $500 million acquisition, so a much smaller acquisition, $450 million of it in cash. Only 50 million in stock, but it does move Joby more into the defense space. Now, what they said in the release is that this is actually going to become their new defense business and we're going to kind of, kind of have two separate divisions because I think that they're worried about what exactly what I said earlier. Hey, where you're not a focused company anymore. We thought you were an air taxi company and now you're a defense contractor. So I think the idea here is just like with Archer's acquisition, you are bringing in, you know, $100 million worth of revenue. It is a growth company. It can kind of operate on its own and yet still have a little bit of that optionality in the defense side. But for Joby, I think the bigger question to me is what does this company want to be long term? And if the answer is you want to be a big air taxi company, then just focus on that. Don't take that $450 million and put it into a defense contractor. Put it into scaling out your business and becoming their taxi company. But, you know, the market's reaction. Ironically, loved Archer yesterday. Pretty ho hum on this Joby deal today. Stocks down about 3%.
[22:47]
A
Two quick notes and things that I noticed with both of these deals. For one, Boeing sold them an autonomous EVTOL design, but kept the autonomous software for themselves. So interesting little fold in that development. And also in the Joby press release, I was very surprised how much they were Talking about acquiring 1 million square foot of manufacturing space. Kind of almost as a little bit of, yeah, we bought a defense business, but look at all this manufacturing space we have now. So we can start to scale up. Maybe that was just to your point, trying to stay focused and saying, that's what we got, but we'll see. So here was my takeaway from kind of both of these announcements. It appears to be a deliberate move to diversify the holdings. And is this kind of an admission that this EVTOL deployment commercial air taxi business is much harder than initially expected and will likely take a lot longer?
[23:39]
B
I would call it more hedging against the possibility that EVTOLs could take longer than originally thought. Not necessarily an admission that they will both say that they're still on track to reach some key milestones they set this year. But it's true that anytime you're building a new category of a vehicle that flies, I mean, look at Rocket Lab, it's a perfect example. It generally has taken longer and cost more money than originally expected. So it makes sense that investors are somewhat getting impatient with these essentially being pre revenue businesses. But I think they're still on track to deliver the product that they promised. Just, you know, maybe a year or three later than they originally thought.
[24:14]
C
I actually think that this shows that they are trying to diversify a business and not scaling that core business as quickly as they potentially could. And that's where I have a lot more questions than answers, especially on the Joby side, because Joby actually wants to have potentially commercial passengers in 2026. I mean, they're potentially going to be operating in Texas in 2026, definitely in 2027. So they do not have enough capacity to actually scale that operation today. I don't know where Defense fits into that. You know, you could read into both of these deals, I think, and say that the bigger piece of it is actually autonomy. And they're looking at five or 10 years down the road and going, you know what? We don't even want to have a pilot in these aircraft. We want them to fly fully autonomously. And so we need to build these software pieces by the sensors. That's part of the Joby deal. But I think there's a lot to play out here. We'll get a little bit more information from both. Joby has a presentation for investors after the market closes today. But I think this just does add a lot more questions because they're trying to be both commercial companies and defense contractors. And it's really hard to do both when you don't have either completed at this point.
[25:25]
A
It's definitely a wait and see sort of approach. I can see the logic on wanting to get into the defense business. It's steady, it's cash, generative. You can use that to fund some of the stuff and maybe give yourself a lifeline and not have to go to the capital markets after issuing a slew of press releases just to, you know, pump your stock up enough to make it worthwhile. So we'll see. Again, the thing that scared me the most is when Matt said a year or three. I don't think a lot of investors would be too excited when they hear, well, we're three years behind. I think one year maybe enough. That's all the time we have for today. I'm going to have disclosure when we get out here. As always, people on the program may have interest in the stock that we talked about and the Motley fool may have formal recommendations for again. So don't buy or sell stocks. We solely with a year. All personal finance content follows Motley fool editorial standards. And is not approved by advertisers. Advertisements are sponsored content provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. Thanks to producer Christy Wadeworth and the rest of the Motley fool team from Matt Travis and myself. Thanks for listening and we'll chat again soon.