Amazon Stock Catches Fire - TheStreet

Amazon Stock Catches Fire

Shares soar 27% on a huge quarter and two upgrades.
Publish date:

Updated from 7:37 a.m. EDT

Investors are thrilled with their latest

(AMZN) - Get Report


The Web retail giant blew past analysts' second-quarter expectations and promised good times ahead for the rest of the year. The online retailer scored a pair of analyst upgrades, from Bear Stearns and Lehman Brothers.

Shares of Amazon jumped nearly 27% in early trading Wednesday to $87.77 -- a price not seen since the stock's glory days in early 2000.

In addition to the company's impressive 35% year-over-year sales growth in the second quarter, investors cheered Amazon's unexpectedly strong operating margins and slowing growth on technology and content spending.

For the quarter, net income jumped 257% to $78 million in the second quarter, or 19 cents a share, from $22 million, or 4 cents a share, a year earlier.

Net sales increased 35% to $2.89 billion in the second quarter, compared with $2.14 billion in the second quarter of 2006.

For the quarter, analysts surveyed by Thomson Financial/First Call had forecast earnings per share of 16 cents on revenue of $2.81 billion.

The company's closely watched operating margin, based on worldwide sales, came in at 4%, compared to 2.2% for the same period last year.

Spending on technology and content fell to 7% of sales from 7.8% for the same period last year.

In a conference call for investors, Amazon CFO Tom Szkutak says the company expects to see more modest growth in technology and content spending for the rest of the year.

"For the rest of the year, we will continue to grow into our new level of spending," Szkutak said. "Spending will grow, but we expect the growth rate to be significantly less than in 2006."

International segment sales rose to $1.28 billion, up 31%. Adjusted for currency fluctuations, growth was 26%.

Media business sales grew 27% to $1.83 billion in second quarter 2007, compared to $1.45 billion in the second quarter 2006.

Electronics sales grew 55% to $970 million, and increased to 34% of worldwide net sales, up from 29% in second quarter 2006.

Amazon said it received orders for more than 2.2 million copies of the new

Harry Potter

book, making it Amazon's biggest new product release.

Amazon CEO Jeff Bezos also gave a bullish outlook for the company's Web services division, which rents things like computing power and storage space to other companies.

"We are seeing very good early traction in our Web services initiatives," Bezos said. "It is very encouraging because we have a lot of customers and we are creating a lot of value for those customers."

Bezos said it was too early to comment on its Unbox video downloading service, but noted that Amazon had announced a partnership with


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during the quarter to help boost the service.

Still, asked if investors could expect improving margins going forward, Szkutak said that a focus on the customer experience would continue to trump margin considerations.

For the third quarter, the company said it expects revenue between $3 billion and $3.175 billion.

Analysts had forecast $3.1 billion in revenue.

For the full year, Amazon expects revenue of between $13.8 billion and $14.3 billion. Analysts expected revenue of $13.84 billion.