NEW YORK (TheStreet) -- Amazon (AMZN) - Get Report Web Services (AWS), the company's cloud business, makes up a maximum 10% of Amazon.com's total revenue but half of the company's profits, RBC Capital Markets analyst Mark Mahaney reported on Bloomberg TV's "Bloomberg GO" Wednesday.
Amazon, Mahaney says, has gone from a low margin retail business to a high margin cloud infrastructure business.
"We refer to it as probably the single biggest most influential business model shifts across technology today," Mahaney said.
That business model is the real reason behind the positive inflection point seen in Amazon's financials over the last year and half and the biggest factor behind he re-rating of the shares over the last two years, he said.
"We expect continued growth momentum for Amazon and rising profitability out of the cloud segment," Mahaney said.
From the cloud business alone, Amazon has seen about 60% year over year revenue growth with an approximately $10 billion run rate.
Amazon however won't be able to sustain those growth rates at that level for too long, but keeping it close to 50%-60% will be beneficial for the company, he explained.
The single biggest driver of the re-acceleration in the core retail business of Amazon, he says, has been Prime.
The growing number of Prime subscribers, which is bout 75-80 million worldwide, have caused that re-acceleration in North America's retail growth but should start seeing that in international growth as well, Mahaney added.
If Amazon can show international growth in Japan, Western Europe, and India it will confirm that Prime works everywhere, he said.
Amazon's second quarter earnings are set to be released next week.
Shares of Amazon are up by 0.76% to $745.61 this morning.
Separately, TheStreet Ratings team is set as a "buy" with a ratings score B-. The company's strengths can be seen in multiple areas, such as its impressive record of earnings per share growth, compelling growth in net income, robust revenue growth, expanding profit margins and solid stock price performance. TheStreet Ratings team feels its strengths outweigh the fact that the company has had generally high debt management risk by most measures that we evaluated.
TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author.
You can view the full analysis from the report here: AMZN