On Wednesday, Evercore ISI maintained a positive outlook on Amazon.com (NASDAQ:AMZN) shares, reiterating an Outperform rating and a $240.00 price target. The firm's analysis highlights the impending launch of satellites for Amazon's Project Kuiper, which is set to start in the fourth quarter. Project Kuiper is Amazon's initiative to provide satellite-based Internet service, and it has garnered attention due to its significant investment and potential impact on the company's financials.
According to Evercore ISI, Amazon has committed $10 billion to the project and is estimated to spend over $10 billion on 94 planned launches over the next two years. The analyst anticipates Kuiper-related losses to increase substantially in the December quarter, estimating a jump from roughly $250 million in the second quarter to between $600 million and $1 billion. This projection leads to the belief that current Street Operating Income estimates for the fourth quarter may be overly optimistic.
Looking ahead to 2025, the firm estimates that losses for Kuiper could soar to between $5 billion and $6 billion before the project starts generating substantial revenue. Despite these significant costs, Evercore ISI suggests that the market opportunity for Kuiper could be undervalued. The firm points to the rapid revenue growth of similar services, like Starlink, and the attractive economics of the satellite Internet segment, which boasts EBITDA margins of 30%-50% among existing competitors.
Evercore ISI also notes Amazon's competitive advantages, such as its strong consumer presence and the extensive ground infrastructure provided by Amazon Web Services (AWS). The firm posits that even a 1% penetration of Amazon's Global Prime member base could translate to almost $750 million in annual revenue for Kuiper. Additionally, the firm expects Amazon to reveal improvements in core U.S. Retail margins during the Kuiper investment phase, which could mitigate some investor concerns regarding the project's costs.
In other recent news, Cantor Fitzgerald has raised its price target for Meta Platforms (NASDAQ:META) to $670, maintaining an Overweight rating based on anticipated surpassing of third-quarter earnings and fourth-quarter guidance. The firm's optimism stems from strong advertising checks and potential growth from features like Reels, A+, and personalized recommendations.
Meanwhile, the U.S. Federal Trade Commission's antitrust lawsuit against Amazon will proceed, despite Amazon's request for dismissal. The core allegations involve anti-competitive tactics and an algorithm that allegedly inflated prices for U.S. consumers.
TD Cowen has maintained its Buy rating on Amazon shares, projecting a 10.7% year-over-year increase in third-quarter revenue growth, primarily driven by Amazon Web Services (AWS) and advertising revenues. Similarly, Mizuho Securities has reiterated an Outperform rating on Amazon, with a price target of $240.00, citing increased investment estimates in AWS and a revised upward spending forecast.
Rivian (NASDAQ:RIVN) Automotive, backed by Amazon, has revised its full-year production forecast downward due to a parts shortage. The company now anticipates producing between 47,000 and 49,000 vehicles for the year, a reduction from the previously projected 57,000 units.
InvestingPro Insights
As Amazon.com (NASDAQ:AMZN) embarks on its ambitious Project Kuiper, InvestingPro data provides additional context to the company's financial position. Despite the anticipated losses from the satellite project, Amazon's revenue growth remains robust, with a 12.32% increase over the last twelve months to $604.33 billion. This growth underscores the company's ability to invest in future technologies while maintaining its core business strength.
An InvestingPro Tip highlights that Amazon is trading at a low P/E ratio relative to near-term earnings growth, with a PEG ratio of 0.19. This suggests that the market may not be fully pricing in the company's growth potential, including the long-term benefits of Project Kuiper. Additionally, Amazon's strong return over the last five years, as noted in another InvestingPro Tip, indicates a track record of successful long-term investments.
While the Kuiper project will undoubtedly impact Amazon's financials, the company's operating income margin of 9.0% and EBITDA of $104.05 billion over the last twelve months demonstrate its current profitability. This financial cushion may help Amazon weather the initial investment phase of Project Kuiper.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Amazon, providing deeper insights into the company's financial health and market position.
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