Tracking Amazon's Thin Margin

Amazon.com(AMZN Quote) has had a hard time pleasing Wall Street with its earnings numbers. From most indications, investors are likely to again hear a sour note.

Analysts are calling for Amazon to post a profit of 10 cents a share on both a pro forma and GAAP basis, according to Thomson First Call. Revenue is projected to reach $1.73 billion, which would mark a 25% gain from the year-ago quarter.

In addition to Amazon's bottom line, Wall Street will be keenly watching a few other numbers: revenue growth rates, including international revenue growth and operating-profit margin. In particular, investors have recently fixated on Amazon's operating margin.

And Amazon's margins have had a very lilting look to them in the past few quarters. CEO Jeff Bezos has been betting he'll win the loyalty of online shoppers by offering free shipments on orders over $25. He liked that idea so much that earlier this year he began offering free two-day shipping for customers who paid a $79 annual fee.

Bezos believes it's helping push up revenue as well as free cash flow -- a number that he has argued is a more revealing financial measure than net profit (and many analysts agree with him).

But Wall Street kneels at the altar of the income statement, and vocal investors are unhappy that Bezos is handing money over to UPS and FedEx when it could be going into the investors' own pockets through stock buybacks, if not dividends.

And those irreconcilable views have led to a predictable pattern in Amazon's stock over the past year. For four quarters in a row, Amazon would post a lower-than-expected net profit caused by higher-than-desired operating costs. Investors would slam Amazon's stock down as much as 20% on its earnings report, and the stock would slowly recover, as believers in Amazon's long-term prospects thought they spied a bargain.