Updated with comment from Pentagon on 4/10/18

Now that the U.S. Department of Defense has released its bid for the contract to build the next generation of anti-aircraft missiles, Amazon is taking a gamble on the results.

In the Pentagon’s request for proposals to build the Long Range Air Defense (LRAD) system, the service listed two of the most popular companies currently building its primary air defense system, the Patriot. The companies are Raytheon and Lockheed Martin.

The reason Raytheon and Lockheed are so popular? They are actually quite profitable. Both companies are earnings multiples in the seven to eight range, but Raytheon’s trailing 12-month profit margin is $3.5 billion. Its profit margin is just shy of 9 percent.

The top companies, Boeing and Lockheed Martin, are cash rich and have huge advantages in the arena of aerospace defense, defense by industry standards. This means their share price is more attractive to private investors and there is more less competition in these stocks compared to companies like Raytheon and Lockheed Martin.

But this raises another question: Why did the Pentagon suggest Amazon, a cloud company and internet retail giant, as a potential vendor for LRAD?

“Through their retail experience, Amazon has an ability to process and provide the users with information from what the buyer has just bought,” Jim Conn, who was Special Assistant to the President and Director of Intergovernmental Affairs at the U.S. Department of Defense from 1993 to 1996, told Tax Notes. “It will be amazing to see how they’ll manage this device.”

While Amazon didn’t win the contract, the company will now have the opportunity to submit a better proposal, according to Tax Notes. Amazon isn’t the only company that will likely be interested in this contract.

Read the full story at Tax Notes.

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