Investing.com – Amazon's ambitious Kuiper space initiative has sparked controversy among investors, particularly regarding its financial impact on the company's retail margins.
Project Kuiper is an initiative by the company to increase global access to broadband through a constellation of more than 3,000 satellites in low Earth orbit.
In Thursday's note Barclays (LON:) Analysts estimate Kuiper's losses will peak at $3.3 billion in 2025, representing an 80 basis point decline on operating income (OI) margins.
Despite this, Barclays expects a significant rise in Amazon's 'core' retail direct investment margin, which remains around 450 basis points below 2018 levels.
Barclays notes that Kuiper operates within a promising market worth a total of $61 billion, covering consumer and enterprise broadband, direct-to-device communications, aviation, and more.
However, they note that launching Kuiper satellites requires a lot of capital.
Barclays says each rocket launch could cost up to $150 million, with delays to the United Launch Alliance (ULA) launch pushing costs up until 2025.
“We expect OI drawdowns to be in the range of $500 million to $700 million” of Amazon's Q1 2025 guidance, the bank's analysts stated.
“Kuiper needs 578 satellites before it can provide its service, according to its requirements Federal Communications Commission (BME:), which we expect Amazon (NASDAQ:) to reach around mid-2026.
Once up and running, the bank believes Kuiper can leverage Amazon's e-commerce and Prime ecosystems to gain a competitive advantage.
While this project is five years behind SpaceX's Starlink, Barclays sees the industry evolving into an “attractive two-player market” with room for both players to succeed.
Excluding estimated contribution announcements, Barclays estimates Amazon could achieve an additional 200 to 300 basis points in margin improvement.
This growth potential provides financial flexibility to fund Kuiper alongside other long-term initiatives, such as artificial intelligence, grocery and hardware, analysts concluded.
As Barclays asserts, “Open interest in the retail sector and the impact Kuiper may have on it will be one of the most important discussions around Amazon over the next 12 to 18 months.”
