Markets & Finance

Citigroup Slaps a Sell Rating on Amazon


Analyst Mark Mahaney cites the online retailer's valuation and mounting competition

Citigroup downgraded Amazon.com (AMZN) to sell from hold on Jan. 2, noting the online retailer's profit margins and share price.

Higher spending on new technology has been doing a number on Amazon.com's profit in recent quarters. A 12% one-day jump in the shares on Oct. 24 reflected slightly better-than-expected third-quarter results, but also investor relief that Bezos plans to slow the growth of new tech spending (see BusinessWeek, 11/13/06, "Jeff Bezos' Risky Bet").

Now Amazon's stock price is up more than 50% since their late summer lows, in large part due to the belief that the company's operating margins have been on the path for a healthy rebound, Citigroup said Jan. 2.

But analyst Mark Mahaney is dubious. "We believe that Amazon's current valuation implies a level of operating margin expansion that is simply not attainable," Mahaney wrote in a research note. Mahaney noted challenges ranging from tough competition on pricing to rising online advertising costs.

Amazon's stock closed at $39.46 on the Nasdaq on Friday Dec. 29. The market was closed on Jan. 2 to observe the funeral for former President Gerald R. Ford. The stock had traded at a 52 week low of $25.76 on Aug. 11.


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