* Share drop wipes more than $3 billion off market value
* Biggest percentage loser on S&P 500
* Price targets raised on strong gross margins
July 24 (Reuters) - Shares of Amazon.com Inc (AMZN.O) fell as much as 9 percent on Friday, a day after the world’s largest online retailer posted a 10 percent decline in second-quarter profit and gave a modest third-quarter outlook, prompting one brokerage to downgrade the stock.
Collins Stewart, which lowered its rating on the stock to “hold” from “buy,” said at current valuation levels it did not see any material upside for Amazon.
“Though our downgrade is largely based on valuation, we are also somewhat cautious on Amazon due to the turnaround at EBAY’s Marketplace,” the brokerage said in a note to clients.
Amazon’s shares have jumped more than 80 percent since the start of 2009, outstripping main rival eBay (EBAY.O), as investors have come to depend on Amazon to outpace a soft e-commerce arena by capturing market share and launching new categories of goods.
On Friday afternoon the company’s shares were trading down $8.10 at $85.75 on Nasdaq, wiping more than $3 billion off the company’s market value. The stock’s percentage loss was the biggest on the S&P 500 index .SPX.
Analysts were also concerned about weakness in Amazon’s North American business, particularly in the media category.
“It appears the softness was driven by a decline in video game sales, due primarily to tough comparisons. We continue to view the transition of media from physical to digital format as a risk for Amazon,” Credit Suisse analyst S. Wang said.
In the second quarter, the company saw flat growth in the North American media category. While total sales rose 14 percent, they fell marginally short of estimates. [ID:nN23417518]
However, at least five analysts raised their price targets on the stock, encouraged by strength in the company’s gross margins in the quarter and on the expectation that Amazon will continue to gain market share.
Gross margin in the second quarter rose to 24.4 percent from 23.8 percent a year ago, while earnings of 32 cents a share exceeded analysts’ estimates by a cent.
“We continue to believe Amazon is well-positioned to gain share at the expense of both online and off-line competitors by virtue of its selection, value proposition, and convenience factor,” analysts at RBC Capital Markets said in a note to clients.
The following table lists the price target changes made on Amazon: Brokerage Price target Rating
New Old Bernstein $90 $74 Market Perform Barclays $83 $76 Equal-Weight RBC $98 $95 Outperform S&P Equity $76 $72 Sell Credit Suisse $80 $60 Neutral JP Morgan* $108 (‘10) $91 (‘09) Overweight * The brokerage set a target of $108 for 2010 (Reporting by Amitha Rajan in Bangalore; Editing by Mike Miller)