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By Daniel Sparks - Oct 16, 2017 at 5:05PM

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Will Amazon's big investments suppress profitability again?

E-commerce giant (AMZN 3.15%) suffered a pullback in its stock price when it announced its last earnings report. While revenue continued to surge higher, net income plummeted from $857 million in the year-ago quarter to $197 million. Investors seemed to lose some confidence in the company's ability to grow profits.

Following a quarter marked by heavy investments and rapidly falling profits, investors are likely hoping for a solid third quarter. Amazon is scheduled to report its third-quarter results on Oct. 26.

Ahead of Amazon's third-quarter earnings release, here's a look at three metrics investors will want to check on.

Amazon boxes in an Amazon fulfillment center

Image source:

1. Revenue growth

As a growth stock, investors will pay close attention to Amazon's third-quarter revenue. After all, the company is going to have to keep growing its top line at high rates for years to come if it's going to live up to its wild $482 billion market capitalization.

Amazon said it expected total revenue for the quarter to be between $39.25 billion and $41.75 billion, up 20% to 28% compared to the year-ago quarter. For further context, the middle of this guidance range would put revenue growth for the quarter close to the 25% year-over-year revenue growth Amazon reported in its second quarter.

2. Operating income

Investors looking for Amazon to return to last year's levels of profitability will likely have to exercise some more patience in Amazon's third quarter. The company said it expected its operating income for the quarter to be between a loss of $400 million and an operating profit of $300 million. This compares to operating income of $575 million in the year-ago quarter.

The high end of this guidance range for operating income -- $300 million -- would notably represent an improvement in the quarter's year-over-year operating income compared to Q2. Operating income fell 51% year over year in Q2. The top of this guidance would represent a 48% year-over-year decline in operating income. But Amazon could spook investors if the company reports an operating loss at the low end of its guidance range.

Investors shouldn't get their hopes up for operating income to be at the high end of the company's guidance range. CFO Brian Olsavsky emphasized during its second-quarter earnings call that Amazon remains committed to investing heavily in growth opportunities like fulfillment capacity, video content, and Amazon Web Services infrastructure.

3. Guidance

The one area that investors could get a glimpse of a meaningful rebound in profitability is Amazon's guidance for its fourth quarter. Seasonally, the holiday quarter is always Amazon's biggest quarter of the year. Investors could begin to see some of its recent investments in its business start to pay off during the important quarter as expected record revenue helps maximize economies of scale.

For its fourth quarter, Amazon will be up against some tough comparisons. In the fourth quarter of 2016, it reported revenue and operating income of $43.7 billion and $1.3 billion, respectively. These figures were up 22% and 13% year over year.

A male Amazon employee carrying a box to a conveyor belt at a fulfillment center

Image source: Amazon.

Amazon will report its fourth-quarter results after market close next Thursday. While revenue growth, operating income, and guidance will be important metrics to watch, investors should keep in mind that Amazon's business shouldn't be defined by a single quarter, and put third-quarter results into context with the company's longer-term trends and prospects.

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