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The Kindle is Amazon's Red Herring

I love the attention lavished on Amazon's Kindle. The big news this morning is that Kindle will be sold at Target.

Amazon Kindle
Photo By: Brady
Amazon Kindle

The big news yesterday is that Apple's iPad percolated up to Oprah's attention and she dubbed it the coolest product ever, which is what the world's greatest book reader did to Kindle way back when and contributed to global shortages of the device. (She didn't hand out iPads to everyone in her studio audience, however, and I'm sure they were crushed!)

But all that attention on Kindle, while interesting, simply isn't material to the Amazon story. And on earnings day for this web shopping powerhouse, that's really all that matters.

The company reports tonight after the bell, and the Street anticipates 61 cents in GAAP earnings on $6.86 billion, and $466 million in operating income. The big wildcard comes from eBay's report last night, where the company failed to wow Wall Street as far as guidance is concerned.

The question for investors today is whethereBay's problems are its own, or whether eBay's soft guidance signals a broader slowdown among online shoppers. Somehow, given the current climate, I suspect the former rather than the latter. But we'll see tonight.

Taking a look at the always useful "cheat sheet" from Citi's Mark Mahaney, there are several key metrics worth taking a look at tonight, beginning most notably with the company's second quarter guidance. The Street expects $461 million in operating income on $6.41 billion in revenue. For the full year, the Street is projecting operating income of $2.1 billion on $32.3 billion in revenue.

Other areas that will likely garner some scrutiny include North American revenue growth, where the Street is looking for a 35 percent jump, or about $3.5 billion. Mahaney is a little more tepid, expecting 32 percent growth. Anything over 36 percent would be considered bullish. North American gross margin should come in at 27.9 percent, he says.

International revenue growth should be 45 percent, or $3.35 billion, according to consensus, though Mahaney believes the number should be closer to 47 percent. International gross margin should be about 19 percent. Total company gross margin, he says should be 23.3 percent, slightly below consensus of 23.4 percent.

The folks over at whispernumber.com say Amazon will come in around 66 cents a share, or a nickel ahead of expectations. The folks there say Amazon has beaten the whisper in 3 out of the last 4 quarters, and last quarter, the share price move was down 3.3 percent in one trading day, and down 10.6 percent in the five days following earnings.

WhisperNumber also says that majority of its investors polled anticipate good news with 83 percent positive, 17 percent neutral and none negative.

The fact is, Amazon is looking very good right now. The economic downturn funneled a huge number of consumers to online shopping, looking for deals. Now that they've found them, and they found them on Amazon in droves, it's likely they'll be coming back for more.

Still, with all the good news and trends swirling around these shares, they ain't cheap. The company's trading at a staggering 73 times this year's earnings and 39 times next year's. No room for error here. But Amazon has always traded at a high multiple, and somehow, patient investors have routinely enjoyed a nice return.

The company is facing increasing pressure from publishers, and lots of competition from a slew of e-readers on the market, and many, many more that are headed to market, not the least of which are devices from Apple and Sony .

But amid all that noise for parts of the business that are virtually immaterial to Amazon, the company's core sectors are still showing signs of strength, and the fundamentals remain very positive indeed.

Disappointment will likely mean a severe spanking to these shares; but good news -- and this company needs to offer up some good guidance and an optimistic tone -- will likely be met with a nice, encouraging smack on the fanny for a job well done.

Should be an interesting report indeed.

Questions? Comments? TechCheck@cnbc.com

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