Are Amazon Outages Cause for Real Concern?

We love Amazon (AMZN) as a company. However, last year the abrupt move from $40 to $80 caught us off guard.

We’ve watched it closely and continue to like it but… lately there have been some major outages. Not just the ones that got headlines but quite a few more.

Speculation is out there about what might be going on but facts are few.  If Amazon is having infrastructure problems, we have no doubt that they will figure them out and come back as strong as ever. However, until we know more, we think it’s best to avoid the shares. In fact we just took out a small short position.

Amazon is all about their infrastructure and while web services have not been impacted, as far as we know, they are certainly losing business from the public and the non-public outages. 

In addition we might be in a bit of a lull as we enter the summer season. Kindle is very interesting but it’s early for it to move the needle much. Also other firms, like Google (GOOG), are entering the fray with potent alternatives to Amazon EC2 and S3. 

Valuation is an issue here as well with the stock trading at levels that leave it vulnerable to selling in a rough market looking for excuses. Any more outages or other issues could send the shares down sharply. 

We remain long term buyers on Amazon as a company but are keeping a neutral/negative postion for now.

Disclosure: Short position.

Comments

[Jimmy Goodwin:]

Only a fool would risk shorting Amazon. They are one of the hot companies to get into. With rising oil prices and pay check from Government, more people getting connected and feeling more secure shopping online. They've just built a warehouse by me, its the biggest frigging warehouse I've ever seen. They no.1 online retailer, stock is still heavily undervalued imo.

2008 Jun 12 11:53 AM

[Jimmy Goodwin:]

Standard & Poor's Ratings Services on Wednesday raised Amazon.com's corporate credit rating "The upgrade reflects the company's strong operating performance," said David Kuntz, an S&P credit analyst. The outlook is positive.

I'd say, buy on a dip, like today, the stock is unchanged while market is up +1%, won't get a much better deal than that.

The website went down for a few hours, it happens to the everyone, no website, even google is up for 100% of the time. If a website goes down, it usually means they are overloaded, obviously Amazon try to estimate the load on their infrastructure. So I'm guessing there was a sheer "positive" surprise of incoming customers. I doubt it was anything else, since Amazon can throw pocket change at hardware and tech guys to provide raw horsepower and stability.

2008 Jun 12 12:18 PM

[Et tu, Brute!:]

Amazon went down Friday, was problematic Saturday and Sunday, and went down Monday. It's back up, sales back on track but working still spotty. I'm a seller there. For whatever reason, I'm still not concerned. Amazon is a thinking, long-vision giant and fosters a feeling of security for both buyers and sellers alike. Sheer overload? I'm thinking that's it, both in selling and buying. Seeing lots of "just launched" logos. Amazon will get the situation fixed. They invented online efficiency.

2008 Jun 12 01:41 PM

[rclieb:]

I see that some of the other ebay feedback posters are well versed in financial markets - and watch closely. Amazon - long term - appears to have the right mix to grow and survive - google by its nature will follow the ebay mistakes - and overall will join in with an "also ran" mentality in the online marketplace... infrastructure problems are common with ALL sites - including all 5 of my online web based wholesale and retail sites at any given time - they are accepted fact - and in the long run should not impact overall sales or income for any given site.

2008 Jun 12 02:48 PM