Amazon.com Climbs After Analysts Recommend Stock

Amazon.com Inc., the world’s largest online retailer, rose in Nasdaq trading after at least two analysts recommended buying the shares, citing demand for Kindle e-readers and the company’s electronic-commerce services.

Sandeep Aggarwal, an analyst at Caris & Co., raised his recommendation to “buy” from “average,” while Mark Mahaney, an analyst at Citigroup Inc., reiterated his recommendation that investors purchase the stock. Yesterday, Amazon reported third- quarter profit and sales that topped analysts’ estimates.

“Amazon’s core business remains super strong,” Aggarwal said in a research note to clients today.

The stock had declined in earlier trading amid evidence that increased spending on marketing and warehouses was eroding profitability. Still, third-quarter net income rose 16 percent to $231 million, or 51 cents a share, and revenue climbed 39 percent to $7.56 billion, Amazon said. Analysts projected profit of 48 cents and sales of $7.37 billion.

Amazon, based in Seattle, rose $4.16, or 2.5 percent, to $169.13 at 4 p.m. New York time on the Nasdaq Stock Market.

Chief Executive Officer Jeff Bezos is spending more on places to house the growing array of televisions, apparel and auto parts sold via Amazon’s site. The company also stepped up its use of TV commercials to promote the Kindle and increased marketing for the Zappos.com shoe site.

“Amazon’s investment plans are heavy, but they remain from a position of strength,” Mahaney wrote. Margin pressure reflects “elective investments, not structural issues.”

Rising Costs

Operating income will be $360 million to $560 million, Amazon said yesterday in a statement. Sales will be $12 billion to $13.3 billion. Analysts surveyed by Bloomberg had forecast operating profit of $621.6 million and sales of $12.2 billion on average. Operating expenses rose 40 percent to $7.29 billion last quarter.

Amazon introduced a thinner version of the Kindle in July that works with Wi-Fi and is $50 cheaper than the $189 Kindle that runs over mobile-phone networks.

Amazon is expanding its warehouses and distribution centers to take advantage of the economic and retail recovery. It’s also spending more to promote Zappos.com, which it acquired last year. The company has built 10 new warehouses and will finish another three by the end of the year, Chief Financial Officer Tom Szkutak said on a conference call.

“That -- combined with perhaps some other factors like promotional activity and lower Kindle prices -- has perhaps temporarily hindered margins,” said Fred Moran, an analyst with Benchmark Co. in Boca Raton, Florida.

Kindle Capabilities

The Kindle will generate $2.8 billion in revenue this year for Amazon and $5.3 billion in 2012, according to estimates by Caris & Co. Amazon doesn’t disclose Kindle sales. The company’s ambitions for the Kindle may go beyond books, said Aggarwal in San Francisco.

“Kindle device users will not only continue buying more e- books but also subscriptions, accessories, hardware warranties, and eventually use Kindle’s wireless and computing capabilities for other data and content,” such as music and videos, he said in a note to investors.

Amazon got its start in 1995 as an online bookseller. It has since expanded into dozens of categories -- from baby products to DVDs. Amazon Web Services, which lets customers rent servers to house data and run computer networks, may one day be larger than the retail business, the company has said.

“They’re growing at a good three times e-commerce, and that’s what’s causing them to look at continually investing in the business,” said Scot Wingo, CEO of ChannelAdvisor Corp., which helps merchants sell online. “That erodes the short-term market picture, but sets them up for growing well into the future.”

EBay reported profit and sales forecasts this week that exceeded analysts’ projections, helped by the growth of its PayPal payment processing unit and a revamped marketplace site.

To contact the reporter on this story: Joseph Galante in San Francisco at jgalante3@bloomberg.net

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

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