Amazon.com (AMZN)
 Share price as of Tuesday's close: $44.75
 Share price now: $56.81
 Percent change: 30.0%
 Volume: 104.1 million shares, daily average 6.5 million

The News Published: April 25, 2007
Investors jammed the buy aisles Wednesday for online retailer Amazon.com (AMZN: 56.81, +12.06, +27.0%) after it posted first-quarter profits well ahead of Wall Street expectations. Shares surged 30% to close at $56.81, bringing the stock to its highest level since January 2003.

The Seattle-based company reported first-quarter earnings of 26 cents a share, compared with 12 cents in the year-ago quarter, thanks in part to a lower tax rate. That was well ahead of the average Street estimate of 15 cents a share, according to analysts polled by Thomson Financial.

Sales climbed 32% to $3.02 billion, ahead of the consensus revenue estimate of $2.92 billion.

Amazon also tinkered with its second-quarter and full-year revenue guidance, pulling back from a second-quarter range of $2.8 billion to $3 billion to a more precise spread of $2.7 billion to $2.85 billion. Analysts expected revenue of $2.69 billion for the current three-month period.

For the year, Amazon projected sales of $13.4 billion to $14 billion, a year-over-year growth rate of between 25% and 31%. Analysts expected full-year revenue of $13.37 billion.

The company also on Tuesday announced a $500 million share buyback over the next two years.

The strong results prompted a spate of upgrades to the stock, mostly from previously bearish analysts. Shares had already climbed about 20% since Feb. 1, when it reported fourth-quarter earnings of 23 cents a share, beating Street estimates by a penny.

Citigroup analyst Mark Mahaney upgraded the stock to Hold from Sell, Piper Jaffray's Aaron Kessler boosted his rating to Market Perform from Underperform, James Freidland, at Cowen & Co., rated it Neutral from Underperform, and Hamed Khorsand of BWS Financial upgraded the company to Buy from Hold.

The Analysis
Investors worried about Amazon's operating costs weren't shy about expressing their skepticism that the company could ever show enough upside in its margins to justify its run-up in valuation. That prompted short sellers to wait for the company to sputter. Short sellers held 46.6 million shares, about 15% of its public float, as of March 12. That was largely unchanged from the previous month's data, but the skeptics are now scrambling.

That short squeeze provides a whole lot of juice for today's rally, but it doesn't complete an encouraging story for Amazon.

Short squeeze
Occurs when the price of a security rises sharply, causing many short sellers to buy the security to cover their positions and limit losses. That buying leads to even higher prices, increasing the losses of short sellers who haven't covered their positions. See "Short Interest."