Amazon.com, Inc. (NASDAQ:AMZN) operates as an online retailer in North America and internationally. The company serves consumers through its retail websites and offers programs that enable sellers to sell their products on the company’s and their own branded websites.
The company also serves developers and enterprises through Amazon Web Services, providing access to technology infrastructure that developers can use to virtually enable various type of businesses. Further, it manufactures and sells the Kindle e-reader. Additionally, the company provides fulfillment services; miscellaneous marketing and promotional agreements, such as online advertising; and co-branded credit cards.
AMZN reported earnings last Thursday evening, which on the surface were slightly better than expected. Revenues were a slight beat, while margins improved from horrible to just really bad.
The stock responded with a ramp up from 195 to 225, or nearly 15%. Given that this was not exactly a cheaply valued stock coming into earnings (can you say 180 P/E multiple?), the magnitude of the post-earnings response seems somewhat overdone.
While AMZN is certainly a huge player in the internet space, at some point the company needs to translate revenues into earnings growth. Much of this quarter’s earnings were somewhat manufactured by an after-tax accounting move that added nearly 65% to the bottom line. Additionally, forward-revenue guidance was less than stellar, and there is always the no-tax overhang with AMZN.
Given Friday’s price action, I look for AMZN to struggle to move appreciably higher. The analysts’ upgrades should provide a near-term cushion for the shares, so I look for AMZN to flounder around at these levels, with a price target of 215 by June expiration.
Based on AMZN’s closing market price of $226.85 for April 27, 2012, and using a target price of $215.00 and a target date of June 15, 2012, option strategies to consider include buying a June put butterfly, selling an iron butterfly, selling an iron condor, or using another options strategy that best fits your trading style and risk-return objectives.
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As of this writing, Tim Biggam does not own any shares mentioned here.