Amazon.com has become one of the world's biggest brands on virtually no profit. Investors are imagining the possibilities now that the company is starting to show some earnings.
Amazon Web Services, the cloud-computing infrastructure that provides computing power and storage for some of the world's biggest businesses, is infusing technology margins into the retailing giant. And Amazon's third-party (3P) marketplace, fueled by outside sellers, presents handsome profit because the company doesn't have to source and buy the inventory.
Net income at the e-tailer likely jumped almost fivefold in the third quarter to $386 million, or 79 cents a share, from $79 million, or 17 cents, a year earlier, according to the average analyst estimate in a Thomson Reuters survey. Revenue probably increased 29 percent to $32.7 billion
"We believe the company can drive further margin expansion with 3P and AWS," wrote Neil Doshi, an analyst at Mizuho Securities, in an Oct. 24 report. Doshi recommends buying the shares and has a $950 price target, 14 percent above Tuesday's closing price of $835.18.
Analysts expect to see an increase in gross margin, or the amount of profit left after accounting for the cost of goods sold, to 35 percent from 34 percent a year ago and 30 percent at the end of 2014, according to FactSet.