How will Amazon fund Kuiper? Barclays weighs in

Investing.com — Amazon’s ambitious Kuiper satellite initiative has sparked debate among investors, particularly regarding its financial impact on the company’s retail margins. 

Project Kuiper is an initiative by the company to increase global broadband access through a constellation of more than 3,000 satellites in low Earth orbit.

In a note Thursday, Barclays (LON:BARC) analysts estimated that Kuiper’s losses will peak at $3.3 billion in 2025, representing an 80-basis-point drag on operating income (OI) margins. 

Despite this, Barclays projects significant upside for Amazon’s “core” retail OI margin, which remains about 450 basis points below 2018 levels.

Barclays notes that Kuiper operates within a promising $61 billion total addressable market, spanning consumer and enterprise broadband, direct-to-device communication, aviation, and more. 

However, they note that launching Kuiper’s satellites is capital-intensive. 

Barclays says that each rocket launch could cost as much as $150 million, with delays in United Launch Alliance (ULA) launches pushing expense upticks into 2025. 

“We expect OI drag to be in the neighborhood of $500 million to $700 million” for Amazon’s first-quarter 2025 guidance, the bank’s analysts stated.

“Kuiper needs 578 satellites up before it can introduce its service, per its FCC (BME:FCC) license, which we expect Amazon (NASDAQ:AMZN) to reach around mid-2026,” says Barclays.

Once operational, the bank believes Kuiper could leverage Amazon’s e-commerce and Prime ecosystems to gain a competitive edge. 

While the venture trails SpaceX’s Starlink by five years, Barclays sees the industry evolving into an “attractive two-player market” with room for both players to succeed.

Stripping out the estimated contribution advertising, Barclays estimates Amazon could achieve an additional 200 to 300 basis points in margin improvement. 

This growth potential is said to provide financial flexibility to fund Kuiper alongside other long-term initiatives, such as AI, grocery, and devices, analysts concluded.

As Barclays emphasizes, “Retail OI and the impact Kuiper may have on it will be one of the most important discussions around Amazon for the next 12-18 months.”