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Amazon Stunned Shorts, Forced Covering: Pros


Talk about a stronger than expected quarter – the Street was stunned by the latest numbers from Amazon.

After the bell, buyers drove shares of Amazon as much as 13% higher after the company reported EPS of $.28/ share. The Street was expecting $.07/share.

“But what really shocked the Street was the operating margin,” adds Fast Money trader Guy Adami. ”It was about 5 times more than the Street was looking for.”

That metric suggests Amazon is running its business more efficiently. The company had been criticized for that.

As a result, Adami says that shorts had to cover. That's why the stock popped the way it did.

Top hedge fund manager Keith McCullough concurs.

“Something like 41 analysts cover this stock with buy rating. After this earnings report, there’s going to be a circus of positive notes flooding the market. Shorts just had to cover.”

And that begs the question, how should you trade this stock?

“I wouldn’t chase it here, I’d wait for the euphoria to settle,” counsels Guy Adami. But then I’d hit the buy button, even at these valuations.” These earnings suggest that the story is getting better.

Trader Brian Kelly agrees. “Even at these valuations, I think it has more upside.”

Trader Mike Murphy can’t get behind the trade. “Amazon is over-extended. I just don’t see how it goes a whole lot higher.”

Tim Seymour shares the skepticism. “It’s still not a stock I’d want to own - but if you do – watch the technicals. The stock is back to where it was in November - I’d wait – I think the stock will peak out.”

Looking at the numbers a little more closely, the company reported net income fell to $130 million or 28 cents per diluted share in the first quarter, versus $201 million or 44 cents a year ago. But that was far above the average Wall Street forecast for 7 cents a share.

First-quarter revenue of $13.18 billion, up 34 percent from a year earlier, was ahead of Wall Street estimates for $12.9 billion. Operating income was $192 million, compared with $322 million a year earlier.

What do you think? We want to know!

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Trader disclosure: On Apr 26, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Jon Najarian is long DECK; Jon Najarian is long EXPE; Tim Seymour is long AAPL; Tim Seymour is long BAC; TIm Seymour is long CSCO; Brian Kelly is long SPY; Brian Kelly is long USG; Brian Kelly is long IWM; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long AGU; Guy Adami is long MSFT; Guy Adami is long NUE; Guy Adami is long BTU; Keith McCullough is long GLD; Keith McCullough is long XLU

For Keith Goddard
Keith Goddard is long SPLS
Keith Goddard is long AMZN

For Peter Nesvold
Nothing to disclose

For Michael Pachter
Wedbush Securities makes a market in the securities of NFLX with wires.