Amazon.com ( AMZN) is in Wall Street's doghouse. Shares of the top Internet retailer are down 28% this year, while the Nasdaq Composite Index is down just 7%. Only three of the 26 analysts who cover the Seattle-based company call its stock a buy. Their average target price is near $36, roughly $2 above recent trading prices. Whether the negative sentiment on Amazon is overblown will be evident when the e-tailer reports second-quarter results after the market closes Tuesday. Analysts are expecting earnings to drop to 7 cents a share from 12 cents a year earlier, according to Thomson Financial, marking the sixth straight quarter of bottom-line declines. Sales are expected to rise 20% to $2.15 billion. Investors have seen their doubts about e-commerce companies grow this year, as competition is rising. Meanwhile, search-engine advertising has made it easier for businesses to sell directly to the public without the help of middlemen like Amazon. Amazon has been relying on costly promotions, like free shipping, to lure price-conscious consumers to its site, analysts say. "We'll be focused on pro forma operating margin, which we expect to dip to 3.7% due to gross-margin pressures and increased technology spending," writes McAdams Wright Ragen analyst Dan Geiman, who rates Amazon a hold, in a note to clients. He pegs the year-ago figure at 7.5% and expects operating margins will rebound in the second half of the year if Amazon's technology spending moderates. Operating profit will also be hurt to the tune of about $25 million by the departure of Toys R Us from an online venture the companies operated, according to an 8-K filed by Amazon. Closely held Toys R Us won a court challenge earlier this year in which it sought to end the partnership and that would allow it to set up a rival site. That decision is under appeal. To be sure, Amazon is trying to drive more traffic to its site. Earlier this month, the company announced plans to sell groceries and extended its partnership with Target ( TGT). Comic Bill Maher also began hosting a talk show on Amazon in June. Amazon is set to launch a digital video service in August, according to a report in Advertising Age. An Amazon spokeswoman couldn't immediately be reached for comment on the story. "Amazon needs to do all it can to direct eyeballs toward its sites," says Timothy Ghriskey, chief investment officer of Solaris Asset Management, which has more than $1 billion in assets, but doesn't hold Amazon. "They key for them is market share at the expense of earnings. Investors don't love that strategy." To view Street Insight's video preview of Amazon, please
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