Investors love Amazon's cloud and advertising efforts, but it could have just gotten a big boost from an older business (AMZN)

jeff bezos

Amazon is set to report its third-quarter results on Thursday.
Wall Street is expecting standout earnings and significant sales growth.
Although many analysts are focused on the company's fast-growing advertising and cloud businesses, its e-commerce business might boost its results, thanks in part to booming business on Prime Day.

Analysts and investors generally love Amazon for its fast-growing and super-profitable cloud-computing and advertising businesses.

But if the company's third-quarter results topped Wall Street's expectations — as many are now expecting they did — it could well be because Amazon got a boost from its boring old online retail business. The company continues to gain share in online retail sales; the number of members of its Prime subscription service, which offers free shipping, continues to grow; and it likely saw booming sales on Prime Day, when it offers steep discounts on products to subscribers, analysts said.

"We expect Q3 profit upside," said Michael Pachter, a financial analyst who covers the company for Wedbush, in a report this week.

Pachter is among those on Wall Street who are particularly bullish about Amazon's results, predicting the company will post revenue and earnings well above the average analyst's expectations.

Wall Street has high hopes for Amazon's results

Those expectations are already heady enough. The consensus view is that the company will report a third-quarter profit of $3.11 a share on $57.1 billion in sales. In the same period a year ago, Amazon earned just $256 million, or 52 cents a share on sales of $43.7 billion.

Investors seem enthused too. Amazon's shares hit their all-time high last month, and the company's market capitalization topped $1 trillion. Although they've sold off since, they're still up 42% in the year-to-date.

Amazon's online retail business could help it maintain its momentum. Worldwide the total amount consumers spend shopping on Amazon, whether on goods it sells itself or on those sold by third-party merchants through its site, should rise 28% to $394.23 billion this year, according to research firm eMarketer. In the US, those sales will grow 29%, the firm estimated.

In the US, consumers' total spending in Amazon's web store now accounts for 49% of total national e-commerce spending, according eMarketer. The company's strong presence on mobile devices and the fulfilment network that it's built out across the nation and world that allows it to offer next-day and same-day shipping on many products is helping it gain even more share, said Mark Mahaney, a financial analyst who covers the company for RBC Capital Markets.

There have been "clear Amazon market share gains," he said in a recent report, adding that the company has "a path for more of the same."

Prime is driving sales for Amazon

The company is particularly benefiting from its Prime service, which originally offered free shipping on purchases, but now comes with a slew of other goodies, including access to Amazon's streaming video service. Some 74% of US teens say their families now have a Prime account, Piper Jaffray analyst Michael Olson said in a recent report, citing a survey his firm conducted this fall. That translates into some 82 million US households, up about 8 million from a year ago, he said.

Although Prime growth is slowing in the US, membership is broadening to include growing numbers of low- and middle-income consumers, Olson noted. Through Prime, Amazon is locking in millions of customers — and boxing out rivals, he said.

"This massive scale is crucial, as it makes it very difficult for competitors, such as Wal-Mart, to change consumer habits," Olson said in the report.

All those Prime members likely added up to a bonanza for the company on Prime Day, analysts said. The total value of goods sold through Amazon by the company and its third-party partners hit at least $4.2 billion and may have gone even higher, Pachter estimated. That would be up 33% from Prime Day last year.

While Amazon records all the revenue it gets from sales it makes directly to consumers, it only recognizes the commissions or fees it charges third-party sellers. Taking that mix into account, the company likely saw revenue of between $1.6 billion and $2 billion on Prime Day, Mahaney said. That would be up from about $1 billion to $1.3 billion on Prime Day last year.

Advertising and AWS remain the company's biggest growth drivers

To be sure, analysts remain enthusiastic about the other parts of Amazon's business. They generally expect the company to again record booming sales from advertising and Amazon Web Services (AWS), its cloud business.

On the advertising front, the company surpassed Microsoft last month to become the third-largest player in the US digital ads market in terms of revenue, according to eMarketer. The firm forecasts that the company's ad sales will grow a whopping 143% this year to hit $5.8 billion. That kind of bullishness is echoed by other analysts.

"Advertising will undoubtedly continue to be the fastest growing and highest margin business for [Amazon] for the foreseeable future," Benjamin Schacter, an analyst who covers the company for Macquarie Capital, said in a report Wednesday.

Although AWS faces growing competition from the likes of Google and Microsoft, it remains the dominant cloud-computing provider, analysts said.

"We expect it to remain the clear cloud leader for the foreseeable future," Schachter said.