Prudential reiterates its sell rating on Amazon.com (AMZN).
Analyst Mark Rowen says Q1 results were better than expected but believes Amazon faces mounting challenges in the upcoming quarters as it tries to balance growth with profitability expectations. He is surprised by the severe growth rate deceleration in U.S. books/music/video and finds it disturbing, considering it the company's only profitable segment.
Rowen believes the zero-contribution-margin "consumer electronics, tools, and kitchen" category will account for as much as 30% of Q4 revenue, and thinks it will have a negative effect on the economics of Amazon's business. Rowen has a $9 target.