amazon_wharehouse1-300x183Amazon’s (AMZN) story is very fairy-tale-like, with Bezos playing every part the hero. Yet when it comes to the numbers game, as in company/stock fundamentals, some see it as a horror story.

Amazon’s operating losses and falling free-cash-flow give current investors fits and keep its fair share of unknowing investors at bay. Just as it suffered a $28 million operating loss in the third quarter of 2012, Amazon is expected to announce another loss between $40 million and $65 million for  the third quarter of 2013 on Thursday.

The news may very well affect short-term performance of the stock.  Then again, last week UBS upgraded Amazon from neutral to buy, suggesting a 24% growth potential by end of 2013. Regardless of what it does in the next quarter, this stock is right on track for the long-term; and if the next decade is anything like the past decade—400% gains—investors shouldn’t be sweating the small stuff.

In fact, Bezos is known for telling stockholders not to focus on quarterly earnings because he always sets his sights on the company’s long-term future.

Waterfalls of revenue

Amazon has revenue streaming from so many different directions it’s hard to pinpoint what part of the business may lead the way through the next decade. Considering it just won a court battle with IBM over a $600 million contract with the CIA to manage its private cloud, its enterprise cloud services arm, Amazon Web Services (AWS), may just be the impetus.

Launched in 2006, this division has enormous potential for longevity and fortunes. Cloud is a mere infant among mature technologies, which means once Amazon grows up, revenues will make up even more of its $61 billion market cap. In the second quarter of 2013, its cloud services contributed $844 million to the bottom line.

A recent report by Morgan Stanley analysts predicted that AWS could contribute $24 billion for Amazon within 10 years. Another report by Gartner stated that “Amazon has reached a staggering level of dominance in enterprise-level computing services for big companies. It is a thought leader; it is extraordinarily innovative, exceptionally agile and very responsive to the market.”

Amazon is ahead of the innovation curve; they set the bar for cloud computing offerings, and are so out in front in terms of market share, that there isn’t a clear No. 2. By one estimate, Amazon now runs as much as 1% of the Internet, smothering its 14 closest rivals with more than five times the combined cloud capacity.

The five companies that face the greatest challenges from Amazon, according to a report by 25 Morgan Stanley analysts are: Brocade (BRCM), NetApp I(NTAP), Qlogic (QLGC), EMC (EMC) and VMware (VMW). These are not the pie-in-the-sky Internet startups that Amazon blew away in the 1990s.

Amazon trades at roughly $326/share today. Who knows if its third-quarter earnings will move the needle?

Just keep this in mind: 50 years ago, average shareholders kept their investments in most companies for about eight years; today that’s down to six months. It might be time to get a little old-fashioned when buying Amazon stock.

 

 

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