Amazon in 'strong position'

In the past two days, two brokers have reiterated their buy ratings on the stock, which has shed more than 30% of its value in the last three months.

Another broker started coverage of Amazon at a buy rating on Tuesday, noting "five key growth drivers" that it believes will push the company's business over the next several years.

"While we are not ready to declare Amazon recession-resistant, it is as close as it gets," Domenic LaCava of Canaccord Adams wrote in a report on Tuesday. "The company reported 37% year-over-year [excluding foreign-exchange rates] revenue growth in the fourth quarter and provided 2008 revenue guidance above consensus in a weak retail environment, showcasing its winning formula centred on convenience, price and selection."

Shifting behaviour

LaCava set a buy rating and $78 price target on Amazon's shares, which were trading up 4.6% at $69.52 by early afternoon.

In another note Tuesday, Jeetil Patel of Deutsche Bank stood by his own buy rating and $110 target on the shares, which he noted have weakened amid growing economic concerns.

"We think that services such as Amazon Prime, Super Saver Shipping, as well as initiatives such as third-party [sales] create for defensibility amid a slowing industry landscape," he wrote.

In particular, Patel said that Amazon Prime, which provides free express shipping to consumers who pay an annual subscription fee, has shifted consumer behaviour on the site by fuelling "cross-category shopping" and increasing purchase frequency. He added that the company's "aggressive pricing" also lessens the need to drive traffic to the site through advertising.

Growing traffic

Mark Mahaney of Citigroup sees several drivers for Amazon. In a note on Monday, the analyst wrote that Amazon's online traffic continued to show gains despite a "modest deceleration" in overall e-commerce traffic during the month of January. He also touted Prime as a benefit in international markets such as Germany, Japan and the United Kingdom.

The analyst also said that growing third-party sales through Amazon's website "may be an under appreciated source of margin expansion and [earnings] growth". Mahaney rates Amazon's stock as a buy with a $97 target.

Not everyone is as bullish on Amazon's prospects. In a February 27 report, Tim Boyd of American Technology Research suggested that the stock was an opportunity for short-selling, given its high valuation relative to peers such as search giant Google.

"We believe Amazon would be more greatly impacted by a softening US consumer than Google because Amazon has direct exposure to consumer spending, while Google's exposure is indirect - as consumer spending softens, online retailers may compete more aggressively for quality traffic (i.e. spend more on search) to attract the fewer available dollars," wrote Boyd, who rates the stock as a sell.

- Dow Jones