Amazon's spending spree to hurt margins now, boost profit later: analysts

Fri Oct 26, 2012 8:59am EDT

A box from Amazon.com is pictured on the porch of a house in Golden, Colorado in this July 23, 2008 file photograph. REUTERS/Rick Wilking/Files

A box from Amazon.com is pictured on the porch of a house in Golden, Colorado in this July 23, 2008 file photograph.

Credit: Reuters/Rick Wilking/Files

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(Reuters) - Amazon.com Inc's spending spree will hurt margins in the near term but boost profit in the long run, analysts said, after the world's No.1 internet retailer posted a loss on heavy spending on technology, infrastructure and digital content.

Amazon shares were set to open about 2 percent higher on Friday even though the company forecast weak sales ahead of the crucial holiday shopping quarter.

Analysts remained largely optimistic about Amazon's ability to post strong growth in its e-commerce and international business despite the economic slowdown in Europe that also contributed to the company's third-quarter loss.

"The low 4Q12 revenue growth guidance presents an upside opportunity particularly given the continued solid customer and unit increases and the strong third-party business," said Needham & Co analyst Kerry Rice, who has a "hold" rating on the stock.

Amazon's current quarter could also benefit from strong e-commerce trends as more consumers shift online to make their holiday purchases, he added.

Barclays Capital Inc analyst Anthony DiClemente cut his target on the stock to $220 from $230, but said Amazon has regularly shown a tendency to set low expectations.

Susquehanna International, while cutting its price target on the stock to $255 from $275, said it was positive on Amazon's growing presence in third-party retail, its digital business leading the transformation of books, music and videos, and its unrivaled network of distribution centers and web service.

RBC Capital Markets raised its price target to $250 from $245, and said it remained bullish on Amazon's opportunities in worldwide retail as it expands in geographies and categories.

International sales rose 20 percent to $5.92 billion in the quarter from a year earlier.

(Reporting by Sruthi Ramakrishnan in Bangalore; Editing by Don Sebastian)

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