The Rundown - Deep Dive: Amazon's 'Project Kuiper' Takes on Starlink

Episode Date: November 16, 2024

In this episode of The Rundown, we dive into Amazon’s Project Kuiper, which aims to launch a constellation of satellites to deliver internet to underserved regions worldwide. While the $10 billion investment is a bold move, analysts are wary of the project’s high cost and long timeline, especially as Amazon faces stiff competition from SpaceX's Starlink. We explore how Amazon’s unique Prime ecosystem could give Kuiper an edge and why, despite the risks, this could be a game-changer for the company’s future. Tune in for a quick breakdown of what’s at stake for Amazon.

Welcome to a weekend edition of The Run Down, where we do a five-minute deep dive on one topic. Today's episode, we're talking about Amazon's ambitions for space. And no, we're not talking about delivering Amazon Prime to Mars. We're talking about Amazon's Project Kuiper. It's Amazon's plan to bring high-speed internet using satellites to the entire world. Amazon's been working on this project for years now, and they're spending billions of dollars to make it a reality. But why is Amazon doing this in the first place? How does it impact their business?

and why is Wall Street on the fence about this whole project? That's what we're discussing in today's episode. All right, let's get into it. So what is Amazon's Project Kuiper? Because I feel like not many people know about this. It's not exactly a brand name here. Project Kuiper is Amazon's plan to launch over 3,000 satellites into low Earth orbit to deliver fast, affordable internet

to places that currently don't have it. We're talking rural areas. We're talking underserved areas all over the world. Like, I was kind of surprised by this, but over 2.6 billion people across, the globe still lack reliable internet access. And Amazon wants to change that by launching satellites into space. They've quietly been working on this project since 2019, and they're getting pretty close to going mainstream with it. And this is not going to be cheap, all right? Amazon's committed

over $10 billion to make this a reality. In fact, some analysts over at Bank of America thinks they might cost over $16 billion by the time Project Kuiper is fully up and running. And analysts Mark Mahaney from Evercore ISI thinks the total losses could be over $5 to $6 billion before Hyper even starts making money. So this is a pretty big gamble by Amazon. It's a multi-year high-stakes, high-costs of operation project, and there's no guarantee they're going to make any money from it. And that's what's making investors kind of nervous.

Like, it's a side project that might ultimately not end up working out and cost the company billions of dollars. But the prize here is pretty massive. We're talking about the space economy, which is expected to boom over the next few decades. Also, the last time Amazon started a side project kind of ended up working out. Look up AWS.

Now, if launching satellites into space, space to offer internet sounds familiar to you. Well, then yeah, you're probably thinking about Starlink. Starlink is part of Elon Musk's SpaceX. And they offer satellite internet services. I personally know some people that have a Starlink device. And from everything that I've heard, it works great. So that's a good blueprint for Amazon to follow. Starlink has achieved so much success in such a short amount of time. It's pretty remarkable. They've gone from zero dollars in revenue to nearly $7 billion in revenue in just four years. That's crazy. Starlink currently has over four million subscribers and over 6,000 satellites in low orbit. And they're not planning to slow down

anytime soon. Morgan Stanley forecast that they're on track to hit 32 million subscribers by 2040, which is estimated to bring in $100 billion in revenue. So Elon Musk and the crew over at SpaceX have figured out how to do this pretty well. But just because they figured it out, it doesn't mean that it's going to be easy for other companies to follow. Like there have been other low orbit satellite companies and they've gone bankrupt. And that Elon Musk himself talked about this two years ago, he said the goal for Starlink was simply to just not go bankrupt. I mean, that's kind of Elon's thing, you know, coming into an industry that has seen failure and then figuring it out. He did this with the EV industry, you know, with Tesla.

There have been tons of other EV companies that have tried to copy his success. It hasn't worked out. Fisker, bankrupt, Lordstown Motors, Bankrupt, Nikola and Lucid Motors also facing financial difficulties right now. I mean, even Amazon-backed Rivian has failed to live up to the hype, and their stock is down nearly 90% from their IPO price. So just because Starlink has been successful so far, doesn't mean that Amazon's automatically going to be successful as well. But see, Amazon is uniquely positioned. They have Amazon Prime.

And it might be the main driver behind Amazon's push into satellite internet. Amazon Prime is Amazon's secret weapon. Well, Prime probably isn't a secret weapon because there are over 184 million people subscribe to it. But if Amazon can offer cheap, reliable satellite internet to people that currently don't have it, that could mean more subscribers to Amazon Prime. And it could mean more shoppers on Amazon.com, which means more revenue for Amazon.

And given the underserved internet market in rural areas where only 22% of households have decent internet, that's a ton of addressable market potential right there. On top of that, there's the economics of the satellite internet itself. Current estimates for EBITOM margins for satellite internet providers is around 30 to 50%. That's pretty decent. And if you want to get real crazy,

you know, maybe Amazon can bundle Amazon Prime with their Kuiper satellite internet service. Or they could offer exclusive devices like a fire TV or a ring doorbell that's connected to the internet through their satellites. So the upside is definitely there if Amazon can pull this off. So we know what the upside is for Amazon, but where is Project Kuiper right now? Well, Amazon is expecting to launch its first batch of satellites in Q4 of this year, and they're expecting initial customers to test the service in 2025.

And they actually have a bit of a deadline they have to work on. The FCC has mandated that Amazon get at least half of its Kuiper satellites up and running by July of 2026. That is coming up pretty fast. But hey, Amazon seems to be locked in. They've already booked 83 launches from companies like Blue Origin and SpaceX, and they've successfully launched two prototype satellites into orbit already. So is Project Kuiper really going to be Amazon's next big business pillar?

Or is it just going to suck up a lot of money? Right now, it's too early to tell. But Amazon has the infrastructure, they have the money, and they have the market to make this work. I mean, they are up against a massive challenger in Starlink. But man, if Amazon can pull this off, this could be a game changer, not just for, for Amazon in their business, but the entire world.

Well, all right, guys, that's the rundown for today. Thank you guys so much for spending a part of your weekend with me and listening to this episode. If you like what you heard, consider giving us a five-star rating on Apple and Spotify. And if you have a few more seconds, consider leaving us a review as well. And drop some recommendations on topics that we should cover in future episodes. Thank you guys so much for listening. Shout out to Mike and Connor for all the help behind the scenes.

Enjoy the rest of your weekend. And I'll see you guys back here on Monday. This is the rundown, your real-time resource for news events and trends in the markets. All views presented in the show reflect the opinions of the guests. You should not take any mention of a publicly traded security as recommendation to buy, sell or hold that security. Rundown guests are not financial advisors and are not affiliated with public holdings or its subsidiaries. You should make your own financial and investment decisions or consult. Respected professionals. Learn more at public.com disclosures.

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