Update: Google Slashing Cloud Computing Prices Again Is A Clear Negative For Amazon.com

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About: Amazon.com, Inc. (AMZN), Includes: GOOG, GOOGL
by: Paulo Santos
Summary

Google has announced yet another 10% drop in cloud computing prices.

This is a major negative for Amazon.com, because its recent deterioration in earnings was mostly tied to the previous drop in cloud computing prices.

The market is aware of this link and is likely to react negatively to the news.

Usually, this would mostly go unnoticed. Google (GOOG, GOOGL) has slashed cloud computing prices yet again, by a further 10%. However, this time there will be an impact - on Amazon.com (NASDAQ:AMZN). The AWS economics are turning into a large problem for Amazon.com.

The reason is simple. A large part of Amazon.com's horrid Q3 2014 guidance, where the company recognized it might face an operating loss of $400 million to $800 million, was due to the price war AWS was facing. Indeed, Amazon.com had earlier recognized that its customers would be saving "hundreds of millions of dollars" due to the latest round in cloud computing price drops, also initiated by Google and matched by Amazon.com. The move also had an impact on Amazon.com's revenue growth rate, with the "Other" category where AWS is included seeing a large drop in its year-on-year growth rate.

So this new round of price drops is bound to be followed by Amazon.com yet again, along with IBM, Microsoft and others. And again, this is bound to have a renewed impact both on Amazon.com's reported earnings, and its revenue growth rate. As such, the new announcement by Google is a clear negative for Amazon.com. The market is likely to react negatively as this is very present in Amazon.com's investors' minds.

Disclosure: The author is short AMZN. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.