How will Amazon fund Kuiper? Barclays comments from Investing.com

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

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

In a note dated Thursday, Barclays (LON:) Analysts estimate Kuiper’s losses will peak at $3.3 billion in 2025, implying an 80 basis point decline in operating profit margins (OI).

Still, Barclays forecasts significant upside to Amazon’s “core” retail OI margin, which remains about 450 basis points below 2018 levels.

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

However, they note that launching the Kuiper satellites is capital intensive.

Barclays said each rocket launch could cost up to $150 million, with delays to United Launch Alliance (ULA) launches causing costs to rise into 2025.

“We expect the OI drag to be in the range of $500 million to $700 million,” the bank’s analysts said of Amazon’s Q1 2025 forecast.

“Kuiper believes it needs 578 satellites before it can launch its service FCC (BME:) license, which Amazon (NASDAQ:) is expected to achieve around mid-2026,” says Barclays.

Once operational, Kuiper believes Kuiper could leverage Amazon’s e-commerce and Prime ecosystem to gain a competitive advantage.

While the company is five years behind SpaceX’s Starlink, Barclays believes the industry is evolving into an “attractive two-player market” with room for both players to succeed.

Excluding the estimated advertising contribution, Barclays estimates that Amazon could achieve additional margin improvement of 200 to 300 basis points.

Analysts concluded that this growth potential provides financial flexibility to fund Kuiper, among other long-term initiatives such as AI, food and devices.

As Barclays points out: “Retail OI and the impact Kuiper could have on it will be one of the most important discussions around Amazon over the next 12 to 18 months.”