Amazon to $400: Haters Can't Make Sense of It

NEW YORK ( TheStreet) -- Last week, ( AMZN) made headlines, and rightfully so, for cutting a deal with the United States Postal Service (USPS) for Sunday delivery. It's worth outlining Amazon's otherworldly retail dominance, but, as usual, doing the homework over time and moving beyond the obvious can give you an edge crushed AMZN shorts do not have.

As I noted in the aftermath, Sunday delivery changes the game or, at the very least, shifts the pace.

First, there's the obvious. Not only does Sunday delivery give shoppers one less reason to visit brick-and-mortar operations, it gives them one more reason to drop $79 a year for Amazon Prime. Second, it begs the question -- why didn't any of these geniuses running things at physical retailers think of this or something equally as clever first. (Say it with me, They're mired in a culture of obviousness).

Headed into the holidays, this puts further pressure on traditional retailers. Sunday delivery should also increase the number of orders Amazon takes, which ought to enhance its Q4 top line (and, quite possibly, bottom line).

Nothing short of incredible.

Granted, this is anecdote, but my local United Parcel Service ( UPS) driver told me his unit usually runs about 20,000 packages a day. But, in morning meeting after morning meeting lately, his bosses have telling the crew to get ready for an additional 10,000 packages daily between now and the end of the year. While Amazon boxes comprise a good chunk of the current 20,000, at least this one faction of UPS expects Amazon to own a lion's share of the extra 10K.

Whether or not that's enough to make you bullish on UPS, I don't know.

All of this -- and various other offshoots of Amazon's amazing e-commerce story -- illustrates an obvious dominance that drives AMZN stock higher, even in absence of beefy profits. The few remaining tortured AMZN bears focus on profitability, ignoring the good "problem" Amazon has.

Spending sacrifices short-term numbers, but only because it comes in response to massive near-to-long-term opportunity. Given all the money tech companies sit on, this should be a breath of fresh air, not a red flag for investors. That said, AMZN's performance (up 64% over the last year) proves that any bearishness most likely comes from a vocal, yet misguided and emotionally stubborn peanut gallery.

As amazing as all of this is, it's really not the most incredible storyline in the Amazon narrative.

You really need to read a story TheStreet's Andrea Tse wrote last week: Amazon Gains as Web Confab Reveals New Products. It focuses on Amazon Web Services (AWS), a business Amazon CEO Jeff Bezos thinks could eventually be bigger than his company's retail operation.

This revelation made me think back to an April 2011 piece I wrote at Seeking Alpha lamenting Netflix's ( NFLX) overspending and inability to rely on one line of revenue generated from its $7.99 per month subscription business. Why do you think Netflix has had to desperately raise cash twice in the last several years?

Pardon what could have morphed into a NFLX tangent, as I digress ...

In that article, I noted: "According to Amazon's latest annual report, AWS and other "non-retail activities" took in $953 million in 2010, up from $653 million in 2009."

So that's just under a billion dollars for the entire year of 2010 from that line item in Amazon's annual report. Fast forward to the company's most recent quarterly report and you'll see that that number has skyrocketed to just over $1 billion as of the most recent quarter.

Yes, you're reading this right: A revenue line that generated $1 billion for the entire year of 2010 now generates $1 billion in a single quarter (ended Sept. 30, 2013). In the first nine months of 2013 ended Sept. 30, AWS and attendant non-retail activities brought in more than $2.7 billion. So the growth continues to accelerate impressively to say the least.

Year-over-year, as of the recently reported Q3, AWS and non-retail revenue popped 56%. Electronics and general merchandise -- up 29.1%. And media revenue increased 15.2% between Q3 2012 and Q3 2013.

If you doubt Amazon's retail business, fine. You're wrong. But, you're not entirely crazy if you chalk up AMZN's eventual move past $400 to something other than the retail business bears still fail to properly acknowledge. Maybe they can make sense of AWS.

-- Written by Rocco Pendola in Santa Monica, Calif.
Rocco Pendola is a columnist and TheStreet's Director of Social Media. Pendola makes frequent appearances on national television networks such as CNN and CNBC as well as TheStreet TV. Whenever possible, Pendola uses hockey, Springsteen or Southern California references in his work. He lives in Santa Monica.

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