Surprises are typical during earnings season. But online bookseller Amazon.com has delivered what would be more accurately called an earnings stunner.

Investors raced to buy Amazon.com’s stock Wednesday like it was a “Harry Potter” best seller, pushing shares up $16.93, or 24 percent, to $86.18, after the company late Tuesday reported its second-quarter earnings had more than tripled to $78 million from a year ago.

The earnings and accompanying bright outlook quieted skeptics who have dogged Amazon for years, saying it is just another online retailer doomed to battle with countless low-price and generic online retailers.

On Wednesday Amazon believers were firmly back in control, pushing the stock up so much that it:

— Created $7.2 billion in market value. That one-day increase is greater than the total market value each of 114 of the Standard & Poor’s 500 companies, says Capital IQ.

— Returned Amazon to price levels not seen since before the dot-com bubble burst. Amazon hasn’t had a share price greater than Wednesday’s closing price since Jan. 4, 2000. Amazon is only 24 percent below its all-time high of $113 on Dec. 9, 1999. Other Internet bellwethers are further from their bubble highs, such as Yahoo, which is off 80 percent, and eBay, which is down 43 percent.

— Gave the stock a lofty valuation again. Amazon is now trading for 81 times what it’s expected to earn in 2007. That’s well above the S&P 500′s 16 price-earnings ratio and outstrips Google’s 33 P-E.

— Sent the naysayers scurrying. Investors betting against Amazon are forced to reconsider, says Ryan Detrick, senior analyst at Schaeffer’s Investment Research. Investors have been heavily shorting the stock, a bet that pays off if the stock falls. Ahead of the earnings, more than two-thirds of analysts rated the stock a “strong sell,” “sell” or “hold.” Several analysts reversed course and upgraded the stock after the earnings report.

The fact so many investors and analysts were negative on Amazon is a big reason why the stock jumped so much Wednesday, says Robert Toomey, analyst at E.K. Riley who rates the stock a “hold” because it has run up 118 percent this year.

Amazon is also showing it can squeeze greater profit out of its business, says Brian Bolan of Jackson Securities. For instance, the online powerhouse’s marketing and technology costs grew just 22.6 percent and 20.4 percent in the quarter, while revenue gained 35 percent to $2.9 billion.

But doubters remain, especially after the stock’s run-up Wednesday. Hamed Khorsand of BWS Financial rates Amazon a “sell.”

“The valuation is out of hand,” he says. And Adrian Bachman, portfolio manager at Rydex Investors says Amazon’s valuation is “something worth keeping an eye on.”

This entry was posted on Thursday, July 26th, 2007 at 12:00 am and is filed under Edge. Tags for this post: Arizona, Edge-Government, Edge-Government-Arizona, Government, USA Today. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.