Citigroup Reiterates Buy Rating on Amazon.com (AMZN)

Citigroup is out with an analyst noted this morning, where it reiterates its Buy rating on shares of Amazon.com AMZN; it has a $165.00 price target on the stock. The Citigroup analysts said, “Revenue of $6.57B was modestly ahead of the Street/Citi @ $6.54B/$6.50, while Proforma Operating Income of $406MM was below the Street/Citi @ $442MM/$424MM. GAAP EPS of $0.45 was below the Street/Citi @ $0.54/$0.49. Midpoint Q3 Revenue guide of $7.26B is above the Street at $7.15B, while Midpoint Q3 Operating Income guide of $390MM (low 5.4% margin) is WAY below the Street at $483MM (or 6.7% margin). Hence the 11% aftermarket correction.” They noted a list of negatives for the name, “1. Heavier than expected Fulfillment/Distribution Center costs; 2. Heavier than expected Marketing spend; 3. Heavier than expected Investment outlook – 13 new Distribution Centers (we assumed three), $300MM in Q3 Capex (we assumed $130MM); and 4. Clear slowdown in North America Media Sales – weak Video Game sales a factor.” But also highlighted 3 Key Positives: “1. 5-year high International Revenue growth; 2. 5-year high North America Gross Margin; & 3. Very positive core metrics – esp. 39% Y/Y unit growth.” The Citi analysts closed by saying, “AMZN’s Investment plans are heavier than we had anticipated. But we believe AMZN is doing this from a Position of Strength. Despite macro uncertainty & materially tougher comps, AMZN is following up 42% Y/Y Revenue growth with guidance very close to that same level. AMZN’s record high North America Gross Margin tells you these aren’t structural but elective investments. AMZN is more aggressively attacking its Double-Double Opportunity. The risk is that AMZN is a 2011 stock.”