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Amazon Beats, But Gains Evaporate on Margin Concerns

Shares of internet retailer Amazon.com fell almost 11% in post-market trading Tuesday, reliquishing a 10.6% gain during regular-hours, after the company announced stronger-than-forecasted earnings and revenue and guided up for Q4, but failed to satisfy investors' sky-high expectations. Earnings more than quadrupled, to $80 million ($0.19/share), up from $19 million ($0.05/share) a year ago. Revenue jumped 41% to $3.26 billion from $2.31 billion after the company sold 2.5 million copies of the new Harry Potter book. Analysts surveyed by Reuters were expecting net income of $78.8 million ($0.18/share) on revenue of $3.13 billion. The company said it expects Q4 net sales of between $5.1 billion and $5.45 billion. Q4 operating income is expected to be between $221 million and $291 million, giving a mid-point estimate of $256 million, which was lower than the $265 million analysts had been forecasting, on Q4 revenue of $5.13 billion. Incremental margin was 11.0%, down from 11.4% in Q2. Gross margin of 23.4% was down 0.4% year-over-year; North American gross margin fell 1.6%, while international gross margin gained 0.9%. Gross margin trends, Citigroup analyst Mark Mahaney noted, were negatively impacted by Harry Potter sales. "The concern is probably the margin guidance," Lazard Capital Markets' analyst Colin Sebastian said. "The quarter looks very good. Strong growth across the board, and the third-party marketplace is still growing," (full earnings call transcript). Despite its sterling growth, some analysts say Amazon, which trades at 59x 2008e earnings, compared with eBay at 22x, and Wal-Mart at 13x, is fully valued. Amazon's stock, which closed Tuesday above $100 for the first time since 2000, has risen more than 140% YTD.

Sources: Press release, Reuters
Commentary: Amazon Fails to Impress6 Problematic Valuation Issues With AmazonAmazon: Teetering on a Sell-Off
Stocks to watch: AMZN. Competitors: EBAY, AAPL, BKS, OSTK. ETFs: HHH, RTH, FDN
Earnings call transcript: Amazon.com Q3 2007

Google to Buy TV Demographics Data from Nielsen

On Wednesday Google will announce it has signed an agreement with Nielsen to obtain TV-viewing demographics information from the television ratings agency for an undisclosed sum. In April, Google inked a deal to sell TV ads for EchoStar Communication Corp.'s Dish network through an online platform (full summary). The TV-top boxes used by EchoStar's roughly 14 million subscribers provide Google data on how many people are watching which commercials for how long. The Nielsen data will fill in "a missing piece of puzzle for us," according to Google's director of product management for TV ads, Keval Desai, by allowing it to match up demographic data with the viewing data it already has. By combining the data, Google will be able to better target specific TV-viewing audiences. Director of Google's TV ads service Mike Steib said: "The more measurement, the more information we can give to an advertiser and agency... the closer we get to our goal of helping advertisers put more relevant ads in front of consumers."

MACRO AND HOUSING

Centex Posts Wide Loss on $1B in Impairment Charges

The nation's housing woes continued to affect homebuilders after Centex Corp. reported a worse-than-expected quarterly loss following the close Tuesday. The news sent the company's shares down 1.6% after hours, on top of a 3.6% drop during regular hours in anticipation of the report. Its shares are now down more than 56% YTD. Centex's net loss of $643.8 million ($5.26/share) was much worse than the -$3.26/share analysts polled by Thomson Financial expected (Reuters and Bloomberg consensus estimates were for -$5.52). A year ago, the company earned $1.11 a share. Behind the wide losses were $983 million in land value write-downs and impairment charges, announced earlier this month (full story) - a direct product of downward pricing pressures resulting from the ongoing housing slump. Losses from continuing operations were also $5.26 a share, versus a gain of $0.65 a year ago. The home building unit recorded losses of $953 million. Revenue fell 21% y/y, to $2.22 billion; consensus analyst estimates expected revenue of $2.08 billion. Southeast operations were especially poor, with a 32% reduction in revenue and closings down 26%. Nationally, closings fell 14%. Said CEO Tim Eller: "Market conditions were extremely challenging during the quarter, reflecting the serious disruptions in the credit and mortgage markets that occurred during that period. In response, we meaningfully reduced prices in order to improve affordability for our home buyers" full transcript later today).

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TECHNOLOGY

Research in Motion Jumps on China BlackBerry Plans

Shares of Research in Motion jumped nearly 10% Tuesday on news the company plans to begin selling its BlackBerry in China by the end of this year. China Mobile, China's largest mobile carrier with just under 350M subscribers (est. 67% market share), will provide BlackBerry service to business customers of France's Alcatel-Lucent. Alcatel-Lucent, which already distributes Blackberry devices in Africa and the Middle East, was called a "pioneer" in Chinese phone sales by an Oppenheimer & Co. analyst. The first model to be sold in China will be the BlackBerry 8700. It will face competition from Nokia and the local "RedBerry" by China Unicom, China's second-largest mobile carrier. Research Capital analyst Nick Agostino said he doesn't see the news as a near-term benefit for financials, but said it is a "long-term positive." Analysts and investors alike recognize the vast size of the market, as Agostino commented even with RIM capturing just 1% of the market, "it is certainly a lucrative opportunity for these guys." Research in Motion gained 9.8% to $124.53 during normal trading Tuesday, but gave back 2.7% to $121.13 in extended activity.

Cisco Purchases Navini and Its WiMAX Technology for $330 Million

Cisco Systems announced Tuesday it will buy Navini, a communication equipment company, for $330 million in cash and assumed options. Cisco said using Navini's WiMAX long-range wireless technology, it will be able to offer users access to the Internet without a landline cable, switch, or router connection. This would be invaluable in developing countries with little to no technological infrastructure. Cisco VP Brett Galloway said, "Around the world broadband wireless networks based upon WiMAX have the potential to add millions of new Internet users who cannot be reached economically using copper or fiber infrastructures. Additionally, WiMAX networks will help drive the transition to open IP-based broadband wireless architectures and accelerate the rollout of new applications and services." The deal is expected to close by the beginning of next year. Shares of Cisco closed up 0.6% to $31.55 Tuesday.

Broadcom Reports Lower Profits, Higher Spending

Broadcom reported Tuesday a significant drop in profits. Shares fell steeply after CFO Eric Brandt told investors during a conference call the company expects gross margin to fall even more during the forth quarter than it did in the third."We expect to see an additional decline in gross margin, slightly greater than what was experienced in Q3, as we continue to ramp a number of new products to new and existing customers in the quarter," he said (full transcript). The company posted a net profit of $27.8 million ($0.05/share) compared to $110.2 million ($0.19/share) last year. Revenue increased 5.2% to $950 million. Analysts had been expecting $0.27/share on $929 million of revenue. The main reason for the drop off was amount of money spent on research and development, which jumped 29%, easily outpacing sales. CEO Scott McGregor is looking to challenge Texas Instruments and Qualcomm in the mobile-phone chip market. Broadcom said it would invest heavily next year to serve new customers, though it does not see substantial revenue from that market in 2008, which Charter Equity Research analyst John Dryden took to mean the company's 2008 profit margin would be significantly weaker than expectations. Other analysts were less concerned: "The story's not about this year. It's about late 2008 and 2009, when they have this big wireless opportunity ahead of them," said Adam Benjamin, an analyst for Jefferies. He sees the major investments starting to pay-off next year. Earlier this month, Broadcom unveiled a wireless chip design that puts it months ahead of rivals Texas Instruments and Qualcomm (full story). After gaining 0.8% in the day session, shares closed down 11.2% to $37.35 in extended trading.

Juniper's Surge in Profits Not Enough to Meet Lofty Expectations

Juniper Networks reported after the bell Tuesday, posting a 46% jump in profits, but falling short of expectations. The company's net income came in at $85.1 million ($0.15/share) after reporting $58.3 million ($0.10/share) last year. Excluding certain items, the company earned $0.22/share, beating analysts' expectations by a penny. Revenue jumped to $735 million from $573.6 million, also surpassing expectations of $707.8 million. Despite beating estimates, it seemed the market wanted more from the company, whose shares fell 6.5% in after-hours trading to $34.71, following a 3.5% gain in the day session. "They beat by just a penny, but they should have beat by two pennies or three pennies," said Ehud Gelblum, an analyst at JPMorgan. Investors were looking for even more growth from Juniper, who has seen an increase in demand for greater network capacity spur higher sales (full earnings call transcript). Juniper is the second largest Internet router producer in the world, controlling 15% of the market; Cisco has a grasp on 65% of the market.

MEDIA

NY Times Rebounds on Strong Q3 Results

The New York Times surprised investors Tuesday, reporting a 7% increase in profits and providing some upbeat news in what has been a disappointing earnings season so far for newspapers. The company earned $13.4 million ($0.09/share) compared to $12.6 million ($0.09/share) last year. Revenue increased 2% to $754.5 million. The figures were well ahead of forecasters' estimates of just $0.05/share on $733.6 million of revenue. "Our very strong earnings growth was driven by increased national advertising, higher circulation revenues and our continued focus on cost controls," said CEO Janet L. Robinson (full earnings call transcript later today). September advertising revenue came in at a robust 5.5%, but Robinson cautioned the "visibility on the fourth quarter remains limited." She added October ad revenue was not as strong as in September. The solid third-quarter report came at a pivotal time for shareholders of the newspaper company. The company hit a 52-week low Monday after one of its largest shareholders, Morgan Stanley Investment Management, sold its 7% stake last week (full story). Shares of the company climbed after the earnings release Tuesday, closing up 9.8% to $20.22.

Verizon's FiOS Could Impact Cablevision Buyout Vote - WSJ

The Wall Street Journal reports Verizon's success in attracting customers to its $18 billion TV and faster Internet service, known as FiOS, could be a factor in Wednesday's Cablevision Systems' shareholder vote on the Dolan family buyout offer. In two years since launching FiOS, Verizon has a half a million TV subscribers, and as of Q2, was adding 2,600 subscribers a day. A Banc of America Securities analyst estimates Verizon will have 2M subscribers by 2009, making it the ninth-largest TV provider in the U.S. Analysts and cable company executives have mixed reactions to the success to-date of FiOS, but one sign of strength is Comcast's COO recent acknowledgment that "Verizon is real. [It] is taking video customers from us." Among cable companies, Cablevision is the most vulnerable to Verizon's FiOS roll out, with 25% of its homes serviced already exposed to FiOS, compared to only 4% for Comcast and Time Warner Cable. Cablevision shareholders are set to vote on the controlling Dolan family's $10.6B ($36.26/share) offer to take the company private. The bid has faced increased opposition by large institutional shareholders, who say it widely undervalues the company (full story). Shares of Cablevision Systems gained 0.85% to $31.86 on Tuesday. Verizon rose 1.1% to $44.81.

RETAIL

Wal-Mart Cuts Capex, Pushes International Growth; Shares Slide

Wal-Mart shares fell 2.9% to close at $43.93 Tuesday after the company said savings incurred through a capex cutback will be funnelled into overseas growth rather than additional stock buybacks. The company also said it expects revenue excluding acquisitions to rise 5-8% per year through 2010, below analyst expectations. Wal-Mart CFO Thomas Schoewe said capex for the year ending in January 2008 will be around $15 billion -- below the company's June forecast of $15.5 billion, which was itself a cut from an original estimate of $17 billion. International expenditures could rise to up to $9.9 billion. Analysts expressed concern that Wal-Mart just agreed to pay $862 million for the remaining shares of Japanese subsidiary Seiyu Ltd. despite the failure of the chain to enter profitability after five years of investment. "There are a lot more pressing issues than the consolidating of Japan," said Deutsche Bank analyst William Dreher Jr. Schoewe responded by calling Japan "a great long-term opportunity" and said Wal-Mart will continue to expand in other fast-growing international markets, like Brazil. Wal-Mart is projecting U.S. same-store sales for October to be unchanged or rise 2% from last year. In September, the figure rose 1.4%, shy of the Street's 1.9% forecast. In June, the company said it will open 190-200 supercenters this year, down from an earlier projection of 265-270.

HEALTHCARE/BIOTECH

FDA Wants Avandia to Carry Heart Attack Warning - WSJ

The FDA wants GlaxoSmithKline to add a black box warning about heart-attack risk to its diabetes drug Avandia, a move that could further hurt sales of the once-popular drug, the Wall Street Journal reported Wednesday, citing unnamed sources. Avandia already carries a black box warning about heart failure, but a heart-attack warning is even more serious, and is not carried by Avandia's main rival drug, Takeda's Actos. Avandia's global sales of $3.38 billion account for a full 7% of Glaxo's total sales. Prescriptions for the drug took a hit in May when cardiologist Steven Nissen published an article in the New England Journal of Medicine outlining its heart risks (full story). The idea of attaching a heart-attack risk warning arose after FDA tests found the drug appeared to carry a 38% higher risk of ischemic events; Glaxo disputes the analysis. Some FDA officials have pushed for Avandia sales to be ceased in the U.S. due to its potential danger (full story), so the new warning may be something of a compromise. Any Avandia woes, the Journal writes, should benefit Actos, and potentially older drugs like Merck's Januvia. Glaxo shares are down 1.3% YTD and 7.3% over the past year.

WellPoint Q3 In Line; Struggles to Add Subscribers

Managed health-care company WellPoint Inc. said Wednesday its Q3 net rose 7.1% on increased membership. Net income climbed to $868 million ($1.45/share) from $810.8 million ($1.29/share) a year earlier. Net of investment gains, earnings were $1.44/share, in line with analyst consensus estimates. Revenue rose 5.4% to $15.23 billion, just short of analysts' $15.29 billion estimate. Health plan subscribers were up 615,000 y/y to 34.8 million but flat over the quarter. WellPoint's benefit/expense ratio, which measures the percentage of premiums spent on medical costs, worsened to 81.8% from 81.3%. The firm projected 2008 EPS growth of at least 15%, and said it would add more than 1 million members. It also boosted 2007 full-year estimates by a penny to $5.56/share. "In 2008, we expect continued strong enrollment gains in National Accounts to be accompanied by new membership from our Medicaid contract awards in South Carolina and Indiana, and additional growth in our other commercial and senior businesses," CEO Angela Braly said. Early in October, WellPoint said it would reorganize into three strategic units: commercial accounts; consumers; and a Comprehensive Health Solutions Business unit that will concentrate on health-care quality. Shares are up 1% YTD, vs. a 12% gain in Morgan Stanley's Healthcare Payor index.

MUST-READS ON SEEKING ALPHA TODAY

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Short Idea: Downey Financial Longs Caught in Game of 'Chicken'
Internet: Amazon Blames It On Harry
Software: BEA Rebuffs Oracle Again But Should Tread Carefully
Healthcare: Merck's Earnings Boosted by Strong Vaccine Sales
Retail: Panera Bread's Results Are Nothing Pretty
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Jim Cramer: Latest stock picks
Transcripts: Amazon.com Q3 2007AT&T Q3 2007BP Q3 2007United Parcel Service Q3 2007UAL Q3 2007QLogic F2Q08Broadcom Q3 2007Freescale Semiconductor Q3 2007Juniper Networks Q3 2007XTO Energy Q3 2007Altera Q3 2007Novellus Q3 2007Sherwin-Williams Q3 2007Smith International Q3 2007JetBlue Airways Q3 2007Whirlpool Q3 2007Equifax Q3 2007Level 3 Communications Q3 2007New York Times Q3 2007Burlington Northern Santa Fe Q3 2007Tellabs Q3 2007Lexmark International Q3 2007Biogen IDEC Q3 2007Coach F1Q08Western Union Q3 2007Electrolux AB Q3 2007Canadian National Railway Company Q3 2007Apollo Group F4Q07The Cheesecake Factory F3Q07Microchip Technology F2Q08CR Bard Q3 2007Data Domain Q3 2007Trimble Navigation Q3 2007SL Green Realty Corp. Q3 2007Sandy Spring Bancorp Q3 2007Johnson Controls F4Q07Brown & Brown Q3 FY07Telefonos Q3 2007TCF Financial Q3 2007Waddell & Reed Financial Q3 2007DST Systems Q3 2007Brinker International F1Q08Total System Services Q3 2007Pactiv Q3 2007Kinetic Concepts Q3 2007Omnicom Group Q3 2007Everest Re Group Q3 2007TD AMERITRADE F4Q07Waters Q3 2007Unisys Q3 2007Ecolab Q3 2007Bank of Hawaii Q3 2007Edwards Lifesciences Q3 2007Plum Creek Timber Company Q3 2007

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