, Inc. (AMZN) Killing the Cloud Boom

Analysts who were bullish on the stock at $80/share are now calling it just a “hold,” expecting just $0.62/share in earnings for all of 2013, and just $0.82/share next year. The company’s problems are starting to impact the entire Open Stack infrastructure, which once seemed ready to take out Amazon because code is shared and can be fixed by users.

Red Hat has also been hurt by, Inc. (NASDAQ:AMZN)’s dominance of the space, and while it’s now down just 6% so far this year that understates the recent case. The price of Red Hat Inc (NYSE:RHT) fell from almost $55/share in mid-May to under $46/share by early June, and has since recovered less than half that loss.

Red Hat Inc (NYSE:RHT) is best known for its Enterprise Linux and JBOSS middleware. Its cloud play is called OpenShift, and is designed to bring those other products to cloud operations, making it easier to transfer workloads to cheaper infrastructure and to rewrite applications for use in the cloud. The company has reported earnings twice this year, given its fiscal year ending in February.

Sales for the February quarter were just $4 million ahead of those in the previous quarter, and they were $15 million ahead of that figure in the May quarter. Earnings Per Share (EPS) have been basically flat, at a little over $0.20/share per quarter, and margins are falling slowly.

The game is not over

It’s important to note that, despite its aggressive price-cutting, Amazon has not killed the cloud market, only gotten on top of it. Microsoft has promised to match, Inc. (NASDAQ:AMZN)’s prices on base-level infrastructure, IBM is making its cloud offerings more flexible by buying SoftLayer, and Amazon was hurt last year by a number of ill-timed service outages.

Still, its victory in a tussle with IBM over a $600 million, 10-year contract to build a private cloud for the CIA, provided another shock to the markets. It’s been assumed that, while Amazon was the public cloud leader, companies would want more mainstream partners in building their own private clouds. If the CIA, assumed to be one of the largest such customers, is going with Amazon, who else might?

The Foolish bottom line

Remember, Amazon has an invisible Price/Earnings multiple, because it runs at break-even, and any fall in its sales momentum, even if that comes from retail, is going to hurt shareholders badly. Personally, I thought the price was a nosebleed high at $230/share, I sold my stake, and now I’m looking at a $300 stock, so what do I know.

The Foolish take, however, is to discount Amazon’s competitors until they prove on the bottom line that they can gain traction against it. The cloud boom has become the cloud bust.

The article Amazon Killing the Cloud Boom originally appeared on and is written by Dana Blankenhorn.

Dana Blankenhorn has no position in any stocks mentioned. The Motley Fool recommends and Rackspace Hosting (NYSE:RAX). The Motley Fool owns shares of Dana is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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