Which stocks are looking fine in ’09? Discover all our Foolish ideas for The Best Stocks for 2009.
Of all the things I expected to hear from Benchmark Capital's Bill Gurley on the crisp, clear Silicon Valley morning that we met him, a pitch for a 10-year-old techie that's been accused of running a sweatshop wasn't one of them.
But that's what my Rule Breakers teammates and I got. Gurley bought Amazon.com (NASDAQ:AMZN) at close to today's prices because it trades as if investors assign zero value to the retailer's cloud computing business.
If he's right -- and I think he is -- that would be a huge mistake. Cloud computing is a nascent-yet-critical market that, so far as Microsoft's (NASDAQ:MSFT) Ray Ozzie is concerned, Amazon leads. "All of us are going to be standing on [Amazon's] shoulders," Ozzie said in October, at the launch of Mr. Softy's Windows Azure cloud environment.
Say no more, Mr. Ozzie. Amazon is my choice for the best stock of 2009.
Cloudy with a chance of billions
Whether it'll also be the choice of netizens isn't clear. But I'm not sure it has to be. IDC Research estimates that spending on cloud computing services will rise almost three-fold to $42 billion by 2012, a 27% compound annual growth rate.
"A recent IDC survey of IT executives, CIOs, and their line of business (LOB) colleagues shows that cloud services are 'crossing the chasm' and entering a period of widespread adoption," Frank Gens, senior vice president and chief analyst at IDC, said in October. "Moreover, IDC expects the cloud adoption trend to be amplified by the current financial crisis."
He's referring to small businesses with constrained budgets. For them, cloud computing's low upfront costs could allow for innovation on the cheap. Amazon believes it can court this crowd via its Elastic Compute Cloud (EC2) -- both here and in Europe.
Of course, Amazon isn't alone. Google (NASDAQ:GOOG), salesforce.com (NYSE:CRM), and NetSuite are pitching cloud-based productivity software. EMC (NYSE:EMC) is hoping clients will store data in its cloud. Apple has MobileMe. And finally there's Microsoft's Ozzie, who positions Azure as a massive cluster of processing horsepower and an alternative to EC2.
They're all in the right place at the right time. Pew Research published a report in September that says 69% of "online Americans" already use cloud computing services such as web mail, data storage, or productivity applications.
Sale in aisle @
So what makes Amazon special? Efficiency. Time and again, CEO Jeff Bezos and team have been able to create high returns on invested capital in a notoriously low-margin business:
|
Metric |
Last 12 Months |
2007 |
2006 |
2005 |
|---|---|---|---|---|
|
ROIC |
19.7% |
19.0% |
14.1% |
17.6% |
|
Normalized net margin |
2.8% |
2.8% |
2.2% |
3.5% |
Source: Capital IQ, a division of Standard & Poor's.
Some of that is due to Amazon's business model. Cash comes in the door before product is shipped out. But creativity also plays a role. Amazon is a heavy user of Twitter.
"I work at Amazon. During a lunch break last March I wrote a simple bot that posts Amazon's deal of the day to Twitter," wrote Fool j2xl in response my article about the rebellious micro-blogging service. "Since then I've added Lightning Deals throughout the day. The bot now has close to 3,000 bargain-hunting followers and drives all sorts of orders every day. Add it to the list of Twitter success stories."
I'll say -- @AmazonDeals has more than 3,300 followers on Twitter. We don't know much how much "all sorts" equals, but there are reports that Dell has grossed more than $1 million selling on Twitter. We also know that while Overstock (NASDAQ:OSTK) is on Twitter -- and extremely responsive, I might add -- eBay (NASDAQ:EBAY) isn't. And neither is selling the way Amazon is.
Creative e-tailer. Emerging cloud giant. Is there any stock better positioned for 2009 than Amazon? Not to this Fool. Click here to rate Amazon "outperform" in CAPS if you agree, or "underperform" if you disagree. And be sure to return next week when our editors reveal the Best Stock for 2009.
