Amazon shares surge 17 percent on robust results

SAN FRANCISCO (Reuters) - Amazon.com Inc (AMZN.O) shares rose as high as 17 percent on Thursday as the online retailer's strong second-quarter revenue and profit relieved a wary Wall Street that has been bruised by recent disappointing results from consumer companies.

Some analysts calculated that Amazon's earnings actually fell below Wall Street consensus estimates, but most gave them credit for an unexpected gain related to the sale of its European DVD rental business and slightly lower taxes.

"Overall we think this was an outstanding quarter for Amazon given extraordinarily low levels of consumer confidence in the U.S. and the UK," wrote Bernstein Research analyst Jeffrey Lindsay, who rates shares "Outperform."

Deutsche Bank analyst Jeetil Patel forecast that shares would rise on Thursday, a day after Amazon's results were released, because many on Wall Street had been expecting grim news -- whether higher operating expenses, significantly lower gross profit margins or weakening revenue projections.

Instead, the world's largest Internet retailer posted a 41 percent rise in revenues and earnings that beat Wall Street forecasts, even excluding a one-time gain from an asset sale.

"The company is clearly bucking the slowing consumer spending trends experienced among other companies," said Patel, who has a "Buy" rating on shares.

He pointed to newer offerings, such as digital music and Amazon's new electronic book reader the Kindle, that should contribute to future growth.

Consumers in the United States, and increasingly in the United Kingdom and parts of Europe, have cut back on spending in light of the weakening economy.

In the U.S., higher gasoline and food costs have curtailed trips to the mall, but Amazon said those shoppers were increasingly gravitating online to save on gasoline and look for online bargains.

Brick-and-mortar retailers have felt the pinch, but so have tech giants from Apple Inc (AAPL.O) to Microsoft Corp (MSFT.O) who have expressed caution about the remainder of 2008, disappointing investors during the past week.

Patel noted that Amazon's results "eclipsed" the revenue and profit growth at other large Internet companies such as Google (GOOG.O), eBay Inc (EBAY.O) or Yahoo Inc (YHOO.O).

At least three analysts raised their 2008 revenue targets on the company.

Still, the robust revenue growth is being paid for by sacrifices to profit, said BWS analyst Hamed Khorsand, who has a "Sell" rating on shares, based on their high valuation.

Amazon's operating profit outlook is not as bullish as some had been expecting, Khorsand said, noting that operating margins of 4.0 percent, representing the midpoint of the 2008 operating profit range given by Amazon was lower than the 5 to 6 percent range expected by some on Wall Street.

"2008 was supposed to be a year of continued margin expansion, not contraction," wrote American Technology Research analyst Tim Boyd in a note.

Confusion over an unexpected $53 million gain from an asset sale caused Amazon shares to zigzag in after-hours trading following the results announcement on Wednesday.

Earnings of 37 cents in the second quarter beat Wall Street's average estimate of 26 cents per share. Excluding the gain, however, earnings beat analysts' expectations by only 2 cents.

But when accounting for a lower-than-expected tax rate that boosted results in the quarter, Amazon's earnings came in two cents below Wall Street's consensus, at 24 cents, according to two analysts, including Boyd.

He noted, too, that much of the gain seen on Thursday was due to short sellers covering their losses.

"We expect consumer spending to be weaker in the back half of the year and believe that the risk of top- and/or bottom- line shortfalls from Amazon are significantly higher" than they were in the first quarter, Boyd wrote.

At 47 times projected 2008 earnings, Amazon shares are valued higher than most Internet stocks, including eBay and Google, as well as traditional retailers.

Amazon shares closed up 12 percent on Thursday to $78.72 on the Nasdaq after rising as high as 17 percent during the day.

(Reporting by Alexandria Sage, editing by Phil Berlowitz and Andre Grenon)