“3 Kings of Cloud Computing” Motley Fool

By Travis Johnson, Stock Gumshoe, August 17, 2008

This one has drummed up a fair amount of interest from the mighty horde of Gumshoe readers, I’ve been seeing it for a couple weeks now and it appears to still be actively pushed as I type.

So … you might like to know the names of these three cloud computing giants, no? Read on then, fair readers.

The Motley Fool is a company I have some fondness for, but they do drive me to drink with the absurd length of their typical email ads — even someone like me, with a pathological fondness for email hype, can sometimes be pushed past the breaking point. Thankfully, I don’t mind being driven to drink on occasion — much better than driving oneself.

So dig in we shall.

This particular ad is for the Rule Breakers newsletter run by founding Fool Dave Gardner, their most growth-focused service that has typically focused on biotech, tech, and other highly volatile sectors. According to Hulbert, this newsletter has slightly trailed the market for the past one and three year periods, according to the Fool themselves, they have beaten the market by about 12% since inception (I think this newsletter is five or six years old). So neither terrible nor ground-breakingly fabulous in recent years, which is probably not a huge surprise for a newsletter that doesn’t do much with energy or commodities. They have had some good picks, certainly, as almost every newsletter has (the big claims to fame for Rule Breakers include Intuitive Surgical and Baidu, among several others), though the growth and generally smaller cap focus of this newsletter almost promises that there will be a few huge winners over time, and probably many more significant losers — the big winners have to make up for failed growth stocks that collapse.

And David Gardner is apparently a big believer in cloud computing — the spiel for the ad is that this is what keeps Bill Gates up at night, and they weave in a nice story about Microsoft’s failure to capitalize on cloud computing, and the future growth of this technology.

When they talk about cloud computing, they’re essentially just talking about internet-based storage, services, and software — you’ll often see the term “software as service” associated with this, that’s what you have when you use software online that runs over the internet, not from your own machine (Salesforce.com is the poster child of this movement, at least in business services).

And they “give away” the first “King of Cloud Computing” — which, perhaps obviously, is Google. Google is very focused on delivering ads online, of course, but they also are building a capability to deliver applications and software online — the Google Apps package is a cheap competitor to Microsoft, particulary in office software like word processing and spreadsheets (in my personal opinion, the web-based software from Google is awfully balky at times and it would be frightening to use it exclusively if you were in a mission-critical project or in a big hurry, but I do use it, and they do have more advanced developments all the time). Even functions like Gmail are considered cloud computing by most, since the whole system runs off of a server somewhere, the software and messages are not saved on your machine.

And Google is the largest server farm owner, with the most incredible capacity to take on new tasks and storage, so as more info moves online it would logically make sense that they have a chance to benefit. The Fool says that buying Google today is “like buying Microsoft in 1990” (yes, that would have been a really good decision — MSFT went for about 60 cents a share back then, 2000 would have been not so good, it got close to $60 a share, both prices split adjusted).

I own shares of Google and do use Google Docs and Gmail, just for disclosure’s sake.

The current jabber about cloud computing has actually been slightly negative, since both Amazon and Google have experienced significant technical problems and downtime in recent weeks (Google’s was with Gmail), but I’ll agree with David that the trend is certainly moving in this direction — we’re outsourcing everything else, so outsourcing storage, software, and data security is no surprise.

So … what are the other two companies that are expected to benefit from this “cloud computing” boom?

Here’s the spiel for the first one:

“When David first recommended it to the Rule Breakers community back in 2005, he admitted it wasn’t “cheap.” Since then, it’s shot up 150%…

“You see, this company works behind the scenes to make sure you can access everything the Web has to offer at lightning-fast speeds.

“And thanks to the ever-growing number of people now using the Internet to do everything from watch movies to buy houses, this once-flailing refugee of the dot-com meltdown is now one of the most important tech companies in the world.

“Apple, Microsoft, Sony, and Nintendo are among its top clients — and they’re all more than happy to pay up for the quality this company consistently delivers….

“At last count, it had more than 100 clients paying $1 million or more per year. So it’s no wonder that cash from operations has more than tripled from $83 million in 2005 to over $270 million today… Or that the cash on its balance sheet has grown from just $92 million to a whopping $208 million….

“…because this company is both a top dog and a first mover, it has been able to gain an almost insurmountable lead in market share, allowing it to sport superb operating margins. Gross margins currently sit at an incredible 77%; meanwhile, net margins have climbed to an all-time high of 17% — and continue to grow.

“All things considered, I think you can understand why David thinks this will be one of the dominant players in the cloud computing world for years to come.”

So what is this one?

You might have guessed it by now — especially with that bit about the company working “behind the scenes to make sure you can access everything the Web has to offer at lightning-fast speeds.”

Or if not, at least the Thinkola