Amazon's (AMZN 1.35%) stock is an anomaly in many respects. Its approximate $850 billion market cap often implies slow growth ahead, but Amazon has typically maintained a rapid growth pace.

Nonetheless, its stock has fallen significantly in the bear market. Its elevated P/E ratio, which exceeds 75 even after the decline, may explain much of the drop. But another factor likely relates to three critical misperceptions that have wrongly diminished confidence in Amazon.

1. Seeing Amazon as an e-commerce stock

Admittedly, one should understand this perception. Amazon pioneered e-commerce in the first few years of its existence. Also, Amazon's low prices, extensive product choices, and ease of use forced Walmart, Target, and Costco Wholesale to boost their e-commerce and omnichannel approaches to survive.

Amazon's earnings report is not always precise about its revenue sources. Still, investors know the North America and international segments, which mainly consist of e-commerce operations, generated $306 billion in the first nine months of 2022. That accounted for almost 84% of the company's net sales.

However, these segments reported a combined operating loss of $8.1 billion during that time frame as operating margin turned negative. Hence, despite the revenue these segments generate, they hurt Amazon financially.

Moreover, even when these segments turned a profit, the margins in the highly competitive retail business were not impressive. For example, in the third quarter of 2021, the North America segment had a trailing 12-month operating margin of only 3.8%. For international, it was only 0.8%. This means, in a relative sense, retailing contributes relatively little to Amazon's bottom line when it contributes at all.

2. The influence of its cloud service

But how does Amazon make money? The short answer is cloud pioneer Amazon Web Service (AWS). For this segment, the operating margin was 30% over the last 12 months. This actually rose slightly from Q3 2021, when the trailing-12-month operating margin was 29.4%.

That margin gives this segment a considerable advantage. In the first nine months of 2022, AWS generated $59 billion in net sales. But despite accounting for less than 16% of company net sales, it earned nearly $17.6 billion in operating income. Hence, AWS carried Amazon as the company reported $9.5 billion in operating income.

Additionally, AWS continues to lead the cloud segment, claiming a 34% market share. Also, Market Research Future forecasts a compound annual growth rate of 18.5% through 2030. Since that would take the market size past $1.7 trillion by that year, AWS and, by extension, Amazon stock, has positioned itself for considerable growth.

Cloud Market Share by Company, Q3 2022.

3. Ignoring Amazon's digital advertising

Amazon has also become a more prominent player in a market once dominated by Alphabet's Google -- digital advertising. Its extensive e-retailing presence has made it a valuable space for advertisers.

For now, Amazon holds a small but growing percentage of digital ads, claiming about 15% of the market in 2021, according to Insider Intelligence. That has already translated into considerable revenue. In the first nine months of 2022, Amazon's site generated more than $26 billion in ad revenue alone. And over the latest quarter, ad services revenue grew by 30% year over year, a slightly faster rate than AWS. 

Amazon did not break down which parts came from the North America and international segments. But considering the growth of advertising services, ads may hide and partially compensate for the recent struggles in e-commerce.

What its businesses mean to Amazon

Given this data, investors need to think of Amazon as a cloud stock and digital ad company. Indeed, Amazon will continue to heavily influence e-retailing, and its presence will likely keep its name fresh in the minds of consumers.

However, e-commerce has become Amazon's loss leader, and it will probably not be a major source of its operating income even when it's profitable. Investors should adjust expectations accordingly.