Why Investors Expect Less From Amazon

On Thursday, Amazon.com (AMZN -0.05%) will release its latest quarterly results. The key to making smart investment decisions on stocks reporting earnings is to anticipate how they'll do before they announce results, leaving you fully prepared to respond quickly to whatever inevitable surprises arise.

Amazon has been one of the fastest-growing businesses in the market, having seen its revenue continue to soar over the years as it dominates online retail. But earnings growth hasn't been a big priority for the company, and even some long-term investors are getting impatient with the slow pace of rising net income. Let's take an early look at what's been happening with Amazon over the past quarter and what we're likely to see in its report.

Stats on Amazon

Source: Yahoo! Finance.

Will Amazon deliver healthy results this quarter?
Analysts have marked down their estimates recently on Amazon, knocking a full $0.25 per share off their earnings calls for the first quarter and a similar amount from full-year 2013 consensus estimates. As a result, the stock has largely been in a holding pattern, with a small 2% loss since mid-January.

Amazon is best known for its online retail marketplace, which has grown to dominate the industry. Big-box retailers continue to struggle against the "showrooming" threat of customers simply visiting stores only to buy goods more cheaply from Amazon. Even retail leader Wal-Mart (WMT -1.45%) has had to come out with same-day delivery and pick-up lockers in order to stand up to Amazon's retail threat.

Yet Amazon hasn't managed to vanquish its rivals just yet. eBay (EBAY 0.61%) has emerged as a viable alternative to the Amazon model, and for potential merchants looking for a place to sell their goods, eBay has the huge advantage of being able to say that it doesn't have its own retail business competing against merchants. Perhaps most importantly, eBay's PayPal is well-placed in the electronic-payments space, allowing an integrated selling experience that Amazon can't offer -- at least for now.

Still, Amazon has much bigger aspirations than just retail. Although its Prime service has become increasingly popular as a way to get free shipping on 15 million items, Amazon has also used it as its entry-point for its streaming video service, providing a huge cost advantage over Netflix (NFLX 2.17%) for shoppers who would subscribe to Prime regardless. The Amazon Web Services division has also gotten Amazon in on the ground floor of the cloud-computing revolution, with huge potential for profitable growth in the future.

In Amazon's report, watch to see if CEO Jeff Bezos gives any insight on when it might start to make earnings more of a priority. The strategy to lure customers into its ecosystem is sound, but at some point, Amazon needs to prove that it can and will produce results for shareholders in order to justify its lofty share price.

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