Amazon.com (NASDAQ:AMZN) reported earnings last week, and once again Wall Street was willing to overlook a loss, because revenue grew 24%. This continues a long streak of Amazon growing sales but hovering near breakeven.

AMZN Net Income (Quarterly) data by YCharts.

Some may point to the company's 27.7% gross margin -- up from 25.3% a year ago -- as a sign of improvement, but that doesn't tell the whole story at Amazon. The company has been pushing Prime as a way to grow sales, but if that's driving sales we need to include Prime costs in the picture as well. If we include all of the costs for Prime -- which offers free two-day shipping and other benefits for an annual $79 fee -- the story changes immensely.

Prime eats Amazon's margins
Below I have built a chart with Amazon's typical gross margin, which is revenue minus cost of goods sold. As you can see, since early 2011 this margin has been on the rise. But in the red line I've provided the company's margin including fulfillment (aka shipping costs), and technology and content (IT and streaming content), both costs directly related to what Amazon sells. As you can see, the company's "real gross margin" has fallen, not risen, over the past three years.

Source: Amazon earnings releases.

The question for Amazon is: When does this trend change? At what point does Amazon turn from growth mode to profit mode, or will it?

Over the past 12 months, Amazon has generated $70.1 million in revenue, nearly as much as Target over the same time frame. But while Target made a $2.7 billion profit, Amazon collected just $132 million. There's no focus on profit for Amazon, and I don't know how there could be if Prime continues to increase costs.

While Amazon's sales were up 23.8% last quarter, its shipping costs increased 34.7%. That trend has been growing for years as shipping costs eat up more and more margin. As Amazon has gained more Prime members, it's actually been hurt on the bottom line, something that will likely continue unless it increases prices or increases the cost of Prime.

Staying short on Amazon
From a stock market standpoint, I've been wrong about Amazon since I shorted the stock, but I believe that last quarter's results demonstrate that the company is still operationally flawed. Until Amazon proves it can make a profit, I'll stay short, even if the market continues to overlook the fact that Amazon has never made money on a consistent basis.

 

Fool contributor Travis Hoium is short shares of Amazon.com. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.