What happened
On Tuesday, shares of Amazon.com ( AMZN -2.55% ) fell by a little -- about 2.3% as of 2:30 p.m. ET -- on some big news. The company is, of course, most famous for its e-commerce business, though it actually makes far more of its profits from cloud computing. And now, it plans to spend billions of dollars to build another brand new business.
In space.
Image source: Getty Images.
So what
Let's get specific.
Project Kuiper is Amazon's plan to mimic SpaceX's Starlink by putting a constellation of 3,000-odd small satellites into orbit that will allow it to sell broadband internet access from space.
Well, on Tuesday morning, Amazon announced plans to kick Project Kuiper into high gear, revealing it had signed contracts with Arianespace (largely owned by Airbus and Safran), United Launch Alliance (a joint venture of Boeing and Lockheed Martin), and Blue Origin (led by Amazon founder Jeff Bezos). Together, the three will provide up to 83 rocket launches that will put Amazon's satellites into orbit.
The press release was a bit short on details. There was no specific date given for the first satellite launch, for example, nor did the company mention the cost of all these rocket launches it's buying. Commenting on the news, however, our friends over at Ars Technica speculated that "Amazon is likely paying at least $10 billion for these launches."
Now what
Is that a lot of money, or a little? Investors selling off Amazon stock Tuesday may think it's a lot -- but when you consider that the company earned more than $33 billion in profits last year alone, I'd argue that $10 billion is actually a relatively small amount for a company of its size. That's especially true given that the rocket launches in question are expected to be spread out over five years -- and $2 billion a year would amount to only about 6% of Amazon's annual profits.
Of more concern to me is the fact that Amazon has made deals to send its satellites to space aboard rockets that mostly don't exist yet -- or, at least, haven't yet been proven able to fly successfully. According to the press release, Amazon plans to hire rides on:
- Arianespace's Ariane 6 (which has never yet flown);
- United Launch Alliance's Vulcan Centaur (which likewise has never flown);
- And, of course, Blue Origin's New Glenn (and not only has that one never flown, Blue Origin has yet to put any rockets at all into Earth orbit).
Granted, I expect that if given enough time, most of these rockets will eventually be proven spaceworthy and reach orbit, such that they'll eventually be able to help Amazon out with its new space project. Still, it's more than a little strange that Amazon is strapping such a high-profile project to the backs of unproven launch vehicles. That doesn't bode well for the chances of Project Kuiper coming to fruition anytime soon.
Then again, if that means Amazon might not actually end up spending $10 billion on rocket launches, investors might decide that's actually good news.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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