Amazon Multiple Will Compress, but How?
So this month, all the big cloud-related stocks have fallen faster than the market. Rackspace(RAX) , Red Hat(RHT) and VMWare(VMW) are all down over 10% this month, a move that has accelerated as the month has gone on.
One result is that their price-to-earnings multiples are almost getting affordable. VMWare is down to 55, still rich but more in line with the 21.74 of EMC, which owns 80% of it.
Only one major cloud player hasn't played this game. Amazon.com(AMZN) is down only 5% for the month.
Why does that matter? Because Amazon Web Services has become the de-facto public cloud standard, its Application Program Interface essential to deployments. AWS is why Amazon sells at a cloud multiple, not its retailing operation. Also, investors know that Amazon has been willing to forego short-term profits in order to maintain its high market share.
It's one thing to play price games with Rackspace, a much smaller competitor. It's something else to try and do it with Google and Microsoft.
Of course when I wrote about this issue in March, Amazon was sporting a price-to-earnings ratio of 134. Even with its latest drop in price that's now at 176, thanks to its most recent earnings.