Let me start by saying that I am not a technology analyst. I like technology, I use technology, but I am certainly not the guy to ask when it comes to the next big thing. With that being said, Equinix (NASDAQ:EQIX) taught me a very good lesson today. Aside from being a financial firm, Hedge Fund LIVE (www.hedgefundlive.com) is a website; and websites need to host traffic. As my next-seat-neighbor Saad would tell you, in order to host traffic you need servers. Way back when we started our website we bought a server. It wasn’t big, but it served its purpose at the time. As time progressed and our site built a consistent user base it was time to explore other options. About 6 months ago, our venerable COO, Marc (may the) Schwartz (be with you) set out on a multi-day journey to visit “CoLo” facilities in the New York area. Upon Marc’s return he made an auspicious announcement: “we’re going with the CLOUD” (the Amazon cloud to be exact).
This got me to thinking – this guy just went on a 3-day hunt for CoLo facilities and came back with a cloud. It was like going to the store for milk and coming back with potato chips – why the sudden change of heart? So I put together a little comp sheet (found here) of both colocation and cloud hosting companies. The first 4 names on the sheet were Equinix, Terremark (NASDAQ:TMRK), Rackspace (NYSE:RAX), and Savvis (NASDAQ:SVVS), down 33%, 4%, 11%, and 10% respectively today. EQIX and TMRK seemed to be heavily dependent on colocation services, while RAX and SVVS split their efforts between CoLo and cloud hosting. We probably shorted a little bit of each company back then, but have since covered those positions and therefore did not profit from today’s movement in these stocks. I don’t feel too badly since, for the most part, each of those names other than EQIX is up since that point in time. Nonetheless, I can’t help but hear Peter Lynch saying “buy [or short] what you know”.