Why These Amazon Bulls Downgraded the Stock Ahead of Earnings

BGC Partners – the firm that upgraded Amazon.com, Inc. AMZN before its 35 percent run up following its Q4 earnings – downgraded the stock to Neutral today, citing currency headwinds and strong investment as reasons that profitability is not on the horizon. BGC said that though they are "broadly more positive on Amazon's business," it will wait for a pullback in share price or "improved profitability as a catalyst" to restore a Buy rating.

Specifically, BGC said it expects that operating margin contracted in Q1. The analysts modeled Q1 North American margin at 4.8 percent, down from 5.4 percent in Q4. Internationally, the analysts estimated a -1 percent margin.

BGC said it sees revenue coming in below consensus, with Q1 revenue growth at 11 percent year-over-year. While Prime is a strong business, the media business has "materially slowed."

The analysts estimated that net sales in North America were $14 billion – up 19 percent year-over-year – while sales Internationally were $8 billion, down 1 percent YoY. BGC forecasted that results in GAAP operating loss of $450 million to a profit of $50 million.

Amazon is trading at $388.83, near its 52-week high of $392.89. Year-to-date, the stock has gained 25 percent. In the past 52 weeks, it is up 17.2 percent.