Lately it seems that Amazon's stock has run out of steam. Closing today at around $162 per share with a market cap value of $73 billion, it's up some 30% since a year ago, but relatively stagnant in the past 6 months.
Amazon is a large company, but its operations can be divided into only two segments. Its original e-commerce operation which continues to be its core strength driving the majority of its earnings, and its online cloud-based services operation renting bits and pieces of their enormous cloud to customers.
My opinion is that Amazon is beginning to feel some pressure on both businesses from market forces and competitors. With the holiday season behind us, the e-commerce operations are back to their nominal levels but there are also a number of sites that are ramping up their presence. Aside from the likes of eBay (News - Alert) and Walmart, companies like Google, Apple, and even Facebook have started to flex their muscles in the lucrative entertainment and Apps industries where Amazon has been trying to establish a strong presence.
On the Cloud side, there is pressure from technologies such virtualization allowing companies to leverage the unused capacity in their own data centers, yielding significantly better ROI. At the same time companies like Google (News - Alert), Microsoft, and some hosting outfits offer cheaper alternatives to Amazon's cloud services. One might suspect that Facebook with its vast user base and computing muscle could enter the cloud market at some point as well adding more competition.
Chances are that at some point Amazon's shares will resume their growth but for the time-being its valuation seems too rich. Obviously the investors have noticed that too and have decided to take a little rest for now.Robert Hashemian is VP of Web Development for TMCnet.com with a keen interest in financial markets. To read more of Robert’s articles, please visit his columnist page. He also maintains his personal Web site at www.hashemian.com.