Amazon reported its second quarter earnings, showing a strongly downward trend with regard to Amazon Web services. As reported in the Wall Street Journal, “For the second quarter, sales growth slowed to 38 percent from 60 percent in the first quarter and 64 percent a year earlier.” Amazon CTO Werner Vogels pointed out the company has reduced its pricing, which I believe is due to competitive pressures.
As a stock, Amazon demonstrates cult-like behavior quite similar to Apple (News - Alert), with customers and shareholders holding the company in esteem in excess of its price-to-earnings ratio. And perhaps the optimism is deserved. Rather than shying away from Jeff Bezos statement that one day the Web Services part of the company could surpass the storefront, Amazon is instead suggesting that they are further investing in their Web Service infrastructure.
In my opinion, cloud and mobile devices need to be kept at a safe distance. There are opportunities to differentiate, though, with device clients becoming an optimized system.
An open question is whether the cloud will drive commonality or promote further differentiation. As we talk about IoT we keep developing solutions that are specific to frameworks, partnerships and integrators. I expect, however, that everyone will have to deliver to a base common solution. All of which brings me to question of what exactly makes a build-out from Amazon the right move.
In the near future, we may see some acquisitions of data centers, and in Amazon’s case strangely enough the value will be in capacity and not existing customer base. Given the company’s cult shareholder status, in fact, the last thing they probably want is to buy sites based on revenues.
Of course, only time will tell whether I am correct, but in this market I would be leery of buying the frontrunners and instead look to buy into their targets.
(Note: Full Disclosure, I am in bonds only.)
Edited by Maurice Nagle