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After Hours Action: Microsoft, Amazon

AFTER HOURS ACTION: MICROSOFT

The traders spent Thursday parsing through Microsoft earnings after the software giant surprised Wall Street with a better-than-expected profit. But its shares stayed flat as investors expressed concern about the weakness of computer sales amid a faltering U.S. recovery.

The world's largest software maker, whose Windows operating system still runs on 90 percent of the world's computers, is heavily dependent on PC sales, which grew only 3 percent in the quarter, and is starting to feel competition from Apple iPad.

However, on a positive note, Microsoft said sales of its core Office application rose 24 percent, indicating that U.S. businesses are starting to spend more on technology after the recession.

Looking at the numbers more closely Microsoft reported earnings of $6.63 billion, or 77 cents a share for its fiscal second quarter, versus $6.66 billion, or 74 cents a share a year ago.

Sales rose to $19.95 billion in the most recent quarter, up from $19.022 billion.

Microsoft was seen reporting a lower profit of 68 cents a share, and sales of $19.147 billion, according to a consensus estimate from Thomson Reuters.

What’s the trade?

I own Microsoft, says Karen Finerman. For me, it always comes to valuations and at these levels I find the stock compelling.

I think the success of Windows 7 as well as the positive momentum from the new Kinect is reason enough for a long-term investors to hold this stock, says Jon Najarian. But in the interests of full disclosure, I’m a trader and flipped the stock.

I think at 12 times the stock is trading at a reasonable valuation, says Colin Gillis. I don’t expect the softness to last.

I agree that the stock should rally from these numbers, says Tim Seymour.

Read More:
Microsoft Profit, Revenue Top Wall Street Expectations

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MICROSOFT - THE OTHER STORY

Aside from the numbers, the Street is also taking a hard look at Microsoft earnings because they hit early, before the markets closed for the day.

"A preproduction draft of our earnings release was discovered by one or more media sources who then published our results to the Web before market close," Microsoft's Bill Koefoed, general manager of investor relations, said in a statement. "After consulting with NASDAQ, we have posted our official numbers. We apologize for any confusion and will review our procedures to ensure this does not happen again."

This has happened before to other companies, including Disney last year. A reporter accessed the quarterly report by guessing the Web address Disney would use before the information was made public, based on the pattern used in past quarters.

Microsoft did not immediately say whether the media used a similar tactic to obtain the early results.

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AFTER HOURS ACTION: AMAZON

Amazon shares plunged in extended trading Thursday on concerns about the merchant's operating margins and after the firm reported revenue that was below what Wall Street expected.

"Operating income (guidance) for the first quarter is well below the consensus and the stock is taking a big hit. It could be that they're back to spending mode," said Tim Ghriskey, CIO of Solaris Asset Management.

Looking at the numbers, The online retailer reported fourth-quarter earnings of 91 cents a share. Amazon earned 85 cents a share during the same period a year earlier.

Sales for the most recent quarter rose to $12.95 billion, up from $9.52 billion last year.

The company was expected to earn 88 cents a share on revenue of $13.01 billion, according to a consensus estimate from Thomson Reuters.

For the current quarter, Amazon said it expects revenue between $9.1 billion and $9.9 billion and operating profit between $260 million and $385 million, including $140 million for stock-based compensation and asset amortization.

Wall Street expected revenue of $9.31 billion, according to Thomson Reuters. Investors were also concerned about the retailer's operating margins, according to analysts.

What’s the trade?

If you’re a trader it’s important to note that historically Amazon struggles from now until the middle of the year, says Tim Seymour.

I question if the stock can sustain its multiple at 72 times earnings, says Karen Finerman. Even if it trades down 10% its still not cheap.

I consider Amazon a momentum stock, says Jon najarian. I expect the stock will test $150, but I’d be a buyer when the momentum shifts and it moves higher again.

Read More:
Amazon Revenue Misses Forecasts; Shares Dive





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Trader disclosure: On Jan. 27, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Joe Terranova is short Gold. Joe Terranova Owns (VRTS), (C), (UPL), (GM), (PEP), (TLT), (MS), (POT), (AAPL), (ARUN), (LTD), (PVH), (CVI), (CVE), (CPX), (CNQ) and (FCX). Karen Finerman owns (AAPL), (BAC), (MSFT), (GOOG), (HPQ), (C) and (BP). Karen Finerman owns (JPM) and (JPM) leaps. Jon Najarian owns (FRO), is short (FRO) calls. Jon Najarian owns (F), is short (F) calls. Jon Najarian owns (GM), is short (GM) calls. Jon Najarian owns (GS), is short (GS) calls. Jon Najarian owns (MOS), is short (MOS) calls. Jon Najarian owns (WMT), is short (WMT) calls. Jon Najarian owns (VZ), is short (VZ) calls. Jon Najarian owns (SNDK), is short (SNDK) calls. Stephen Weiss owns (PZN), (SMCI), (MWA), (AGU), (FAS), (JPM), (DVN), (COP), (DZZ), (MSFT), (QCOM), (HPQ), (FWLT) and (V). Stephen Weiss is Short (GDX). Stephen Weiss is short (GLD).

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JOE TERRANOVA
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
Virtus Investment Partners Owns More Than 1% Of (ABAX)
Virtus Investment Partners Owns More Than 1% Of (AMKR)
Virtus Investment Partners Owns More Than 1% Of (CCG)
Virtus Investment Partners Owns More Than 1% Of (CASS)
Virtus Investment Partners Owns More Than 1% Of (CSVI)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (FCFS)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (KRC)
Virtus Investment Partners Owns More Than 1% Of (LDR)
Virtus Investment Partners Owns More Than 1% Of (LPHI)
Virtus Investment Partners Owns More Than 1% Of (NCRI)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (XLE)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (XLK)
Virtus Investment Partners Owns More Than 1% Of (XLU)
Virtus Investment Partners Owns More Than 1% Of (SUBK)
Virtus Investment Partners Owns More Than 1% Of (WDFC)
Virtus Investment Partners Owns More Than 1% Of (YDNT)
Virtus Investment Partners Owns More Than 1% Of (CLB)

KAREN FINERMAN
Finerman's firm is short (MDY)
Finerman's firm is short (SPY)
Finerman's firm is short (IWM)
Finerman's firm is short (IJR)
Finerman's firm is long S&P puts
Finerman's firm is long Russell 2000 puts
Finerman's firm owns (AAPL)
Finerman's firm owns (BAC) leaps
Finerman's firm owns (BBY)
Finerman's firm owns (BP)
Finerman's firm owns (HPQ)
Finerman's firm owns (IBM)
Finerman's firm owns (JPM) and (JPM) leaps
Finerman's firm owns (MCD)
Finerman's firm owns (MSFT)
Finerman's firm owns (WMT)

COLIN GILLIS
BGC Financial LP and/or its affiliates, expect to receive, or intend to seek, compensation for investment banking services within the next three months from (MSFT)
BGC Financial LP and/or its affiliates, expect to receive, or intend to seek, compensation for investment banking services within the next three months from (AMZN)

RON SHAH
Ron Shah has no disclosures

BRIAN STUTLAND
Stutland Securities is a Market maker holding positions in VIX futures and options
Stutland Securities is a Market maker in SPX
Stutland Securities is a Market maker holding positions in VXX options and stock

DAVID MILLER
Miller has no disclosures

JON NAJARIAN FAST FIRE 12/17/10
Jon Najarian had no disclosures for (COH) or (PFE) on 12/17/10



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