AmTech recommends a long GOOG, short AMZN pair trade ahead of tomorrow’s Google earnings:
AMZN (SELL) and GOOG (Focus List BUY): Short AMZN, Long GOOG Pairs Trade – We Recommend Putting On Ahead of Tomorrow’s GOOG Report. We see a profitable opportunity to take advantage of a disconnect in the valuation and current sentiment towards AMZN and GOOG. Our rationale supports the view that if a softening U.S. consumer is causing a slow-down in the paid search market, online retail and AMZN would be hit harder than GOOG because AMZN has more direct consumer exposure. AMZN is currently trading at a large premium (40x pro forma EPS and 20x EBITDA) compared to GOOG (23x pro forma EPS and 13x EBITDA). GOOG should show operating leverage in 2008 from a material slowdown in hiring – AMZN has already experienced much of this margin expansion cycle in 2007 and it may be forced to sacrifice operating leverage in order to achieve its full-year revenue target.
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