Citigroup downgraded Amazon.com (AMZN) to sell from hold on Jan. 2, noting the online retailer's profit margins and share price.
Higher spending on new technology has been doing a number on Amazon.com's profit in recent quarters. A 12% one-day jump in the shares on Oct. 24 reflected slightly better-than-expected third-quarter results, but also investor relief that Bezos plans to slow the growth of new tech spending (see BusinessWeek, 11/13/06, "Jeff Bezos' Risky Bet").
Now Amazon's stock price is up more than 50% since their late summer lows, in large part due to the belief that the company's operating margins have been on the path for a healthy rebound, Citigroup said Jan. 2.
But analyst Mark Mahaney is dubious. "We believe that Amazon's current valuation implies a level of operating margin expansion that is simply not attainable," Mahaney wrote in a research note. Mahaney noted challenges ranging from tough competition on pricing to rising online advertising costs.
Amazon's stock closed at $39.46 on the Nasdaq on Friday Dec. 29. The market was closed on Jan. 2 to observe the funeral for former President Gerald R. Ford. The stock had traded at a 52 week low of $25.76 on Aug. 11.