Ever since Amazon.com's (NASDAQ: AMZN, Stock Forum) Kindle debuted in November 2007, analysts have speculated as to the device’s popularity. The electronic book reader quickly staked out territory on Amazon's bestseller listing, and brokerage firms from Citigroup Inc. (NYSE: C, Stock Forum) to Stifel, Nicolaus & Co. have offered up their own opinions on potential sales for the device. The hype has yet to reach Apple (NASDAQ: APPL, Stock Forum) iPhone proportions, but the stock has performed admirably amid the speculation. This added pressure could be just the catalyst that AMZN needs to shake those remaining bearish investors loose.
Starting with the analyst community, Citigroup analyst Mark Mahaney announced in early August that he expects Kindle sales to reach 378,000 units this year, with the device creating a $1.1-billion business that accounts for 4% of the company's sales next year. Meanwhile, Scott Devitt, an analyst at Stifel, Nicolaus & Co., declared in mid-August that he expects AMZN to sell 500,000 to 750,000 more Kindles during the next four quarters. Combine this with Devitt's estimate for owners to buy an additional $120 to $150 worth of books and other content for each device, and we arrive at total revenue of between $225 million and $355 million.
But, unlike Apple, Amazon is downplaying the potential for Kindle sales. Last week, McAdams Wright Ragen analyst Tim Bueneman said that the company informed him "that the Kindle is definitely selling very well, but they also said the analysts and reporters giving out these extremely high estimates 'did not run them by company.'" Bueneman also noted, "There are already several new, improved versions of the Kindle in the works... But AMZN has no plans, however, for an MP3 music audio version. We guess the new version will have improved interface operating controls. This has been an issue with some buyers."
But not all analysts are sold on Amazon's prospects. According to Zacks, seven of the 14 brokerage firms following the shares still rate them a "hold" or worse. With opinions already starting to shift among Wall Street analysts, it could be only a matter of time before AMZN is targeted by an upgrade or two from this bunch of holdouts.
Technically speaking, AMZN's long-term uptrend remains intact. The equity has rebounded solidly from support at its 20-month moving average, gaining more than 29% from its July lows near the 63 level. The shares have also reclaimed potential support at their 10-month moving average. AMZN has not closed a month below this duo since September 2006. There is a concern with resistance in the 85 region, but the stock's sentiment backdrop offers some potential buying fuel that could send AMZN over the top.
Specifically, short-term options players are bearishly aligned toward the shares. AMZN's Schaeffer's put/call open interest ratio (SOIR) of 1.52 indicates that puts easily outnumber calls among near-term options. What's more, this ratio ranks above 79% of all those taken during the past year, indicating that speculative traders have been more pessimistic toward AMZN only 21% of the time in the prior 52 weeks.
Digging into the stock's open interest configuration, heavy put accumulations reside at the deep out-of-the-money 70 and 75 strikes. For September and October, more than 23,000 puts reside at the 70 strike, while another 27,000 contracts call the 75 strike home. Comparatively, peak call open interest resides at the out-of-the-money 85 strike, totaling roughly 20,000 contracts, and another 16,000 calls reside at the in-the-money 80 strike. This attention to deep out-of-the-money put open interest indicates that traders are not looking for AMZN to rally much higher, and has bullish implications from a contrarian perspective.
Finally, short sellers are betting heavily against AMZN, as nearly 9% of the stock's float is sold short. However, a shift in opinion among short sellers appears to be taking hold. During the most recent reporting period, the number of AMZN shares sold short slipped by 12.2%. Should this short-covering trend continue, the security could benefit from the added buying pressure, thus helping to push AMZN steadily higher over the intermediate-to-long term.
By Joseph Hargett
See More Articles by Joseph Hargett of SchaeffersResearch.com
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