Why Amazon Stock veered off course today

What happened

On Tuesday, the shares of Amazon.co.uk ( AMZN -3.75% ) fell a bit — about 2.3% at 2:30 p.m. ET — on big news. The company is, of course, best known for its e-commerce business, although it actually derives much more of its profit from cloud computing. And now he plans to spend billions of dollars to start another brand new company.

In the space.

Image source: Getty Images.

So what

Let’s be specific.

Project Kuiper is Amazon’s plan to emulate SpaceX’s Starlink by orbiting a constellation of about 3,000 small satellites that will allow it to sell high-speed internet 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 Saffron), 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. No specific date was given for the first satellite launch, for example, nor did the company mention the cost of all those rocket launches it buys. Commenting on the news, however, our friends at Ars Technica speculated that “Amazon is likely paying at least $10 billion for these launches.”

Now what

Is it a lot of money or a little? Investors selling Amazon stock on Tuesday may think that’s a lot – but considering the company made over $33 billion in profit last year, I’d say $10 billion is actually a relatively small amount for a company of its size. . This is especially true given that the rocket launches in question are expected to span five years — and $2 billion a year would only be about 6% of Amazon’s annual profits.

What worries me most is the fact that Amazon has made deals to send its satellites into space aboard rockets that for the most part don’t yet exist – or, at least, don’t exist. have not yet been proven capable of successful flight. According to the press release, Amazon plans to rent rides on:

  • Ariane 6 from Arianespace (which has never flown before);
  • United Launch Alliance’s Vulcan Centaur (which also never flew);
  • And, of course, New Glenn from Blue Origin (and not only this one has never flown, Blue Origin has not yet put any rockets at all in Earth orbit).

Certainly I expect that if given enough time most of these rockets will eventually be proven worthy of space and reach orbit so that they can eventually help Amazon with their new project spatial. Still, it’s more than a little odd that Amazon would attach such a high-profile project to the backs of unproven launchers. This doesn’t bode well for the chances of Project Kuiper coming to fruition anytime soon.

Then again, if that means Amazon might not end up spending $10 billion on rocket launches, investors might decide that’s actually good news.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging 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 wealthier.

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