Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Is CenturyLink a Real Threat to Amazon’s Cloud Business?

CenturyLink (NYSE: CTL  ) is taking aim at the fast-growing cloud infrastructure business, and believes it has a good shot to become a market leader. Unfortunately, CenturyLink will be joining a long list of technology giants like Microsoft (NASDAQ: MSFT  ) and Google  (NASDAQ: GOOGL  )   (NASDAQ: GOOG  ) , but also the undisputed leader, Amazon (NASDAQ: AMZN  ) . So, while CenturyLink is bullish in its prospects, should you be?

Why is cloud infrastructure so crowded?
By now, you've likely heard the term "cloud" referenced many times, and it's in the cloud where big-time technology companies are laying the groundwork for future growth. The industry itself is separated into cloud infrastructure, or laaS, and app platforms, or PaaS.

In total, this is a market that grew 52% in the fourth quarter of last year, with revenue exceeding $3 billion and falling just shy of $10 billion for the last year. Therefore, if companies such as Microsoft or Google can maintain their 7% and 5%, respectively, total market share, both companies could have a long-term growth segment.

However, 5%-7% market share is not the goal. The ultimate goal is to become Amazon Web Services, which saw year-over-year growth of 60% in its first quarter report and commands more than 30% of the total market. With that said, AWS is estimated to be worth $50 billion today, making this business very important for $20 billion CenturyLink.

What is CenturyLink doing?
CenturyLink is planning to tackle the laaS market, hoping to become a market leader after implementing significant price cuts to its small existing laaS business, combined with a beefed up service plan. CenturyLink also has an enormous network of 56 global data centers, which it believes will allow the company to keep outbound pricing significantly cheaper than AWS's service.

Clearly, CenturyLink is hoping to maximize its large network with recent cloud infrastructure services acquisitions like Tier 3 to create better cost synergies with more services. All in all, it's a good plan, but will it work?

Let's get realistic
If CenturyLink's cost-cutting and boosted services plan was to work, and it could gain ground on Amazon. Then, CenturyLink's stock could soar, as AWS is more than twice as valuable as CenturyLink. However, recent history implies that CenturyLink will not be successful, and that it's approaching the cloud in the wrong way.

Amazon has the largest network, and by far, the most customers and product offerings. As we've seen in the mobile space, larger infrastructure and having the most applications on operating systems are golden in attracting consumers, or in this case, attracting customers.

The laaS market, which is where CenturyLink is hoping to make its mark, is highly dominated by Amazon, as it controls more than one-third of the market. The rest of the market is scattered, with no company owning more than 3% of the share, which includes Google and Microsoft.

With that said, Microsoft and Google have tried diligently to cut into Amazon's share. Microsoft has cut costs and has also boosted features for Azure, while Google recently announced price cuts of 30% in laaS on top of price cuts in quarters prior. So far, nothing has worked.

Instead, companies have tried their luck in the PaaS market, which has been successful, as it's more fragmented. In PaaS, Amazon owns a 17% share, while Microsoft and Google own 14% and 13% of the market, respectively. Therefore, with PaaS also growing fast, and creating more than $100 million in quarterly revenue for those with a 10% share plus, this is the segment where CenturyLink should be focusing its cloud business. But, it's not, and to this point, there's no reason to believe that a beefed up services offering and price cuts will cut into the mighty Amazon's laaS business.

Final thoughts
Admittedly, if CenturyLink can experience success in this business, its stock, revenue, and net income could soar. However, Amazon is on a different level and has such a grasp on the industry that it's hard to imagine CenturyLink being the company to cut into its share. Instead, if you're going to bet on a company to take down Amazon, Microsoft and Google make much more sense.

Albeit, with Amazon 25% off its 52-week highs, and nearly one-third of its valuation tied to the fast-growing and highly valuable AWS, it looks like a golden investment opportunity.

3 stocks poised to be multi-baggers
The one sure way to get wealthy is to invest in a groundbreaking company that goes on to dominate a multibillion-dollar industry. Our analysts have found multi-bagger stocks time and again. And now they think they've done it again with three stock picks that they believe could generate the same type of phenomenal returns. They've revealed these picks in a new free report that you can download instantly by clicking here now.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2945634, ~/Articles/ArticleHandler.aspx, 8/30/2015 8:41:34 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Brian Nichols

Brian Nichols is the author of "5 Simple Steps to Find the Next Top-Performing Stock: How to Identify Investments that Can Double Quickly for Personal Success (2014)" and "Taking Charge With Value Investing (McGraw-Hill, 2013)". Brian is a value investor, but emphasizes psychology in his analysis. Brian studied psychology in undergrad, and uses his experience to find illogical value in the market. Brian covers technology and consumer goods for Motley Fool. Brian also updates all of his new and current positions in his Motley Fool CAPs page. Follow Brian on Twitter and like his page on Facebook for investment conversations and recent stories.

Today's Market

updated 1 day ago Sponsored by:
DOW 16,643.01 -11.76 -0.07%
S&P 500 1,988.87 1.21 0.06%
NASD 4,828.33 15.62 0.32%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

8/28/2015 4:00 PM
AMZN $518.01 Down -0.36 -0.07% CAPS Rating: ***
CTL $27.04 Up +0.30 +1.12%
CenturyLink, Inc. CAPS Rating: ***
GOOG $630.38 Down -7.23 -1.13%
Google (C shares) CAPS Rating: ****
GOOGL $659.69 Down -8.27 -1.24%
Google (A shares) CAPS Rating: ****
MSFT $43.93 Up +0.03 +0.07%
Microsoft CAPS Rating: ***