Amazon Rise Defies the Odds

In the third quarter, tech spending edged down to 7.5%. So when Amazon CFO Tom Szkutak said, "We expect the year-over-year percentage growth in technology and content to continue to decrease," investors were euphoric. Maybe, just maybe, Amazon could boost 2007 earnings by 67%, as the Street was forecasting.

But three months earlier, according to a transcript on SeekingAlpha.com, Szkutak said nearly the same thing. On July 25, he said, "We're looking forward to the coming decrease in our year-over-year growth rate in technology and content spending." To say Amazon is worth buying because it's finally vowed to reduce spending is to come to the party three months late.

But really, there's no other compelling reason to account for Amazon's recent gains. Citibank (which has no underwriting relationship with Amazon) even recommended investors take profits on the rise. But so far investors are holding on.

Amazon's recent performance stands out when its fundamentals are compared to those of its three peers -- eBay, Google and Yahoo!.

The biggest stock gain in the last three months has gone to Amazon -- the Internet company with the highest P/E ratio, by far the worst operating margin (lower even than many so-called traditional retailers), and sales and profit growth that was only slightly worse than Yahoo!, which had been hammered for those very weaknesses.

What's going on here?