Amazon.com Inc. (Nasdaq: AMZN) Stock Surge Has Silenced Critics

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Amazon.com Inc. (Nasdaq: AMZN) stock is soaring today, and analysts are rushing to raise price targets and ratings.

The world's largest online retailer showed its muscle by reporting healthy earnings after the close Thursday, handily beating Wall Street estimates.

The news sent shares soaring almost 15% in after-hours trading. AMZN stock was up more than 16% Friday by 1:30 p.m. EDT to $228.59.

The Seattle-based company reported first-quarter sales jumped 34% to $13.18 billion, compared with $9.86 billion in the first quarter of 2011. Estimates were for $12.9 billion.

Net income slipped to $130 million or 28 cents per diluted share, compared to $201 million or 44 cents a year ago. Despite the decline, it was still heads above the mean forecast for 7 cents a share.

Worldwide media sales surged 19% to $4.71 billion and worldwide electronics and other media merchandise swelled 43% to $7.97 billion.

But the number that really triggered a slew of analyst upgrades was Amazon.com's profit margin increase. The company's gross margin widened to 24% from 22.8% for its best year-over-year improvement in years.

"Bulls have been waiting a long time for this gross margin upside and it finally came in the first quarter," Macquarie Equities Research analyst Ben Schachter told Reuters.

Amazon.com Inc.: Highlights from the Quarter

The stellar numbers were helped by the explosive growth in Amazon's Kindle e-reader and related items.

CEO and founder Jeff Bezos gushed, "I'm excited to announce that we now have more than 130,000 new, in-copyright books that are exclusive to the Kindle Store-you won't find them anywhere else. They include many of our top best sellers-in fact 16 of our top 100 bestselling titles are exclusive to our store."

Bezos continued, "If you're an Amazon Prime member you don't even need to buy these titles, you can borrow them for free, with no due dates, from our revolutionary Kindle Owner's Lending Library. Kindle is the best-selling e-reader in the world by far, and I assure you we'll keep working hard so that the Kindle Store remains yet another reason to buy a Kindle."

Here's a look at more Amazon.com highlights:

  • Amazon expects net sales in the second quarter to grow between 20% and 34% compared with the same quarter in 2011.
  • The Kindle Fire is the No.1 bestselling, most gifted and most wished for product across the myriad items listed on Amazon.com since its launch. The full line of Kindle readers is now available in more than 175 countries.
  • In the first quarter, 9 out of 10 of the site's top sellers were digital products: Kindle, Kindle books, movies, music and apps.
  • Amazon's new version of its popular Kindle for iPad app is the No. 5 free iPad app of all time and is the top free books app on iPad.
  • Amazon.com unveiled the Amazon Instant Video app for PlayStation 3, making the PS3 system the first video game console system to offer Amazon Instant Video. It allows PS3 users to stream Prime Instant Videos, rent or buy the latest movies and TV episodes directly from their PS3.
  • Amazon.com continued to broaden its catalogue offering for Prime Instant Video, inking recent deals with Discovery Communications and Viacom, and bringing the total number of Prime Instant Videos to more than 17,000 movies and TV episodes from other popular media outlets.

What Lies Ahead for Nasdaq: AMZN

Amazon's first-quarter strength boosted analyst confidence in the stock. Many expect its strong momentum to continue.

Ahead of the earnings release, JPMorgan Chase analyst Douglas Anmuth wrote in a research report, "Underlying user growth trends remain strong. We project margin to improve in the back half of the year."

Wall Street celebrated the profit margin growth as a sign of what's to come for Amazon in 2012.

"We were expecting 15 cents EPS, and we were probably the high end of the Street of where margins were," Evercore Partners' analyst Ken Sena told Reuters. "You are starting from a very low point: modest improvement on a percentage basis. It looks pretty good. I think the margins have a long way to go, but I think at least to see them moving in the right direction is an encouraging sign."

Evercore analysts, which lifted their price target to $260 from $235, added, "We believe the investments that the company is making with consumers, merchants and enterprise will largely pay off."

Bank of America (NYSE: BAC) boosted shares from "Neutral" to "Buy." BofA sees AMZN stock carrying positive returns over the next nine months as growth gains speed in the second half, with the launch of a new Kindle tablet and confidence about 2013 margin expansion.

AMZN stock had gained 13% for the year as of Thursday's closing price of $195.99.

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