Amazon shares get boost from analyst upgrade

Morgan Stanley raises price target on stock, sees favorable retail trend

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Shares of online retailer Amazon.com (NASDAQ: AMZN) finished nearly 3 percent higher Wednesday after a Morgan Stanley analyst increased his target price to $225 from $205.

(Also see: Amazon's Cloud Player has already won me over)

Amazon gained as much as 6.54, or 3.7 percent, to 181.16 before closing at 179.42, up 2.8 percent from Tuesday's closing price of 174.62.

Since hitting a 52-week high of 191.60 on Jan. 18, Amazon shares have struggled, falling as low as 160.59 on March 18 amid concerns that the company's investments in new fulfillment centers and other elements of its distribution infrastructure would hurt operating margins.

Morgan Stanley analyst Scott Devitt told clients in a note that retailers such as book seller Borders Group and electronics chain Best Buy are having problems in large part because they're losing sales to Amazon.

In his note, Devitt said "specialty retailers will experience accelerated erosion of market share to Amazon. As investors gain clarity on the sources for Amazon's sales growth, they will better understand the length of the runway and overall story."

Translation: All those people worried about increased spending at Amazon can chill. The company is poised for major long-term growth.

Devitt also cited the company's efforts to go beyond online retail sales to the distribution of digital media such as ebooks, video (to Amazon Prime customers) and music.

Indeed, on Tuesday Amazon announced Cloud Drive, an online service that allows customers to store music in the cloud and stream it to any PC or device running on Google's Android mobile OS (though the streaming feature initially is available only in the U.S). The announcement pushed up shares more than 3 percent in Tuesday trading.

Amazon beat Google and Apple into the cloud music service, or music locker space, but at some risk -- already record label Sony is complaining that Amazon doesn't have the required streaming music licenses and therefore is violating copyrights.

Arguing that streaming music to people who already bought it constitutes a copyright violation strikes me as far-fetched, to say the least. But if the record industry has demonstrated anything during the Internet era, it's that it's resolutely committed to the far-fetched.

Chris Nerney writes about the business side of technology market strategies and trends, legal issues, leadership changes, mergers, venture capital, IPOs and technology stocks. Follow him on Twitter @ChrisNerney.

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