Why analysts are upping the numbers on Amazon

What a difference a day makes. Yesterday, investors expected Amazon report earnings per share of 46 cents this year, which led to a comical price-to-earnings ratio of almost 1,100.

Today, expectations are for a profit of $1.21, a 220 percent increase, and the P/E is now down to roughly 475, even though third quarter operating income guidance is very wide, from a loss of $480 million to a gain of $70 million.

This is amazing, considering Amazon's profitability has been erratic and the company does not appear to have any new product launches (Remember the Fire phone?) scheduled for 2015.

And it doesn't stop there. Expectations are now for a big gain of $4.21 in 2016, which would bring the P/E down to roughly 140.

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The source of this enthusiasm isn't hard to spot: Amazon Web Services, its cloud storage business, and Prime membership, the key to its North American retail operations.

Both are growing. Fast. Revenues for Web Services were up 81 percent. Amazon hasn't broken out details for Prime membership, but everyone seems to believe it has at least 30 million members paying $99 a year, and that it will likely exceed 40 million by the end of the year.

That's close to $4 billion a year.For a subscription service, essentially. And those people, by most estimates, spend twice as much as a non-Prime members. How much do they spend? I've seen many numbers, but $1,400 or so per year has popped up often.

Do the math. Revenues of $1,400 times 40 million members equals $56 billion. That's about half their estimated sales for this year from a loyal cadre. Wow.

That tells me that Amazon is becoming an even more formidable retail competitor. And remember—it is just entering the grocery business.

And they are becoming a powerhouse in clothing as well. Earlier this week, Cowen put out a note claiming they could become the number one apparel retailer by 2017, surpassing Macy's.

Think about that. Cowen estimates that Amazon is currently 5% of U.S. Retail Apparel sales. They estimate it will go to 14% by the end of 2017.

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Amazon Q2 revenues:

• Amazon Web Services: up 81 percent
• N. American Retail: up 26 percent
• International: up 3 percent

By the way, even Amazon is not immune from the effect of the strong dollar. International revenues were only up 3 percent. However, that weakness is mostly due to currency headwinds; in constant dollars, international revenues were up 22 percent.