Project Kuiper is an Amazon enterprise aimed at delivering internet services via satellite transmission, similar to Elon Musk’s Starlink. By scaling its reach across the globe, Project Kuiper will ideally be able to provide internet access to underserved or unserved communities — and there are more of these communities than you may think. Even today, estimates are that an astonishing 1 in 3 people around the world have never used the internet.
For a long time, Project Kuiper has looked much better on paper than in real life. But it seems like that’s about to change. Amazon has announced it will be making 83 launches to put its 3,236-satellite constellation in orbit within a five-year period. This venture includes some serious short-term expenses. Here, we’ll share our opinion on how investors should view Project Kuiper’s efforts.
Figure 1: Project Kuiper: What Investors Should Know
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A Golden Opportunity…
Project Kuiper has plenty of social appeal, but it also, undoubtedly, has the potential to tap into a gigantic unrealized market. SpaceX’s president and COO Gwynne Shotwell has stated that the addressable market (TAM) for global broadband is $1 trillion — in fact, SpaceX expects its Starlink system to account for over 85% of all of the company’s revenue by just 2025.
“Starlink is best set up to serve rural villages and the rural population. We can do work in the city, but you can’t put enough bandwidth down in a city. Starlink is very complimentary to the large ISP, and especially fiber-based systems,” said Ms. Shotwell.
By extension, we can deduce the same market growth potential addressable by Starlink is applicable to Project Kuiper as well. And, since Elon Musk’s company has barely started to capture its addressable market, it is possible Bezos’ behemoth could pose a real threat to Starlink’s hegemony.
…In Exchange For an Iron Risk
Needless to say, launching a satellite constellation is not as simple as managing a grocery store or adding movies to a streaming portfolio. Elon Musk’s company, for instance, recently indicated that “silicon shortages” had caused delays in its satellite production, in turn leading to a slowdown in Starlink’s user growth. Kuiper could run up against the very same supply chain issues.
Another risk is the possibility of miscalculations in projections. In 2017, The Wall Street Journal described a scenario in which 25 million customers would generate $30 billion in revenues by 2025 for Starlink’s coffers, at operating margins of 60%. However, in February 2022, Elon Musk acknowledged that the system may not be able to support as many users as previous projections had indicated, which would demonstrably affect his previous revenue projections.
Project Kuiper is likely to incur the very same risks as Starlink. But Starlink is also more likely to have to deal with those problems first, meaning Kuiper may have a roadmap in place to avert challenges by the time it’s a major player in the market.
Looking to the Long Term
Considering the return horizon and all the involved risks, it seems unlikely Project Kuiper will have any influence on Amazon stock performance right now. Therefore, it’s more of a gamble and less of an investment to buy or sell the stock based on Project Kuiper’s potential. The project is in its early stages and is about four years behind competitor Starlink.
That said, we must acknowledge Project Kuiper has significant synergies with Amazon’s main businesses. By delivering fast broadband connections to underserved populations around the world, Project Kuiper could increase Amazon’s profitability and could help it leverage the growth of its e-commerce, cloud computing, advertising, and streaming services.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting The Amazon Maven)
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