(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)

Amazon.com (AMZN), the world's leading e-commerce company, has grown at a breathtaking pace in the past decade under CEO and Founder Jeff Bezos, boosting revenue nine-fold to an estimated $232 billion last year. Today, it's one of the world's largest companies by market value. That growth has been fueled not only by e-commerce, but by its emerging leadership in cloud computing and new product lines such Alexa, its virtual assistant. The company is expected to report fourth quarter results on January 31.

Analysts estimate that revenue will grow 19% to $71.9 billion, while earnings more than double. Amazon announced in late December that it set a new holiday sales record, which suggests that the company's fourth quarter results could come in well ahead of estimates. Amazon's stock plunged in October after missing estimates for third-quarter revenue.

For the fourth quarter, investors will watch closely to see if revenue - long the key benchmark at Amazon - is on track company wide as well as in key growth areas such as cloud services, advertising, grocery retailing through its Whole Foods acquisition, and also the impact of holiday sales on Amazon's core e-commerce business, which still brings in the vast majority of the company's revenue.

All About AWS

But even with the strong holiday sales, investors are likely to focus on its web services business, also known as AWS, which has gotten so big that it's now dueling with Microsoft Corp. (MSFT) for the No. 1 spot in the industry. According to data from BusinessQuant, AWS’s sales have nearly tripled since the first quarter of 2016, from $2.5 billion to $6.7 billion last quarter. Additionally, AWS has grown to 12% of Amazon's total revenue last quarter, up from around 9% at the beginning of 2016. 

Fat Cloud Margins

However, what's even more critical is what AWS is adding to the company’s bottom line. Operating income for the unit has risen from roughly $600 million in the first quarter 2016 to $2.1 billion last quarter, a rich operating profit margin of 31%.

Slowing Revenue Growth

Amazon's margin-rich cloud business will help it to continue booting profits at a rapid pace even as overall company revenue growth slows from 31% in 2018 to 18.5% in 2020. By contrast, analysts estimate earnings will grow by 39% in 2019 and 48% in 2020.

Not Easy To Value

In the past, investors have mainly valued Amazon on its revenue growth. However, that may change as that growth slows and earnings become more important. The stock looks expensive compared to its historical price-to-sales ratio, which typically peaks at around 2.7 times the next 12 months' estimates. However, the stock trades at roughly three times next year’s estimates.

Option Traders' View of AMZN Stock

The options market is pricing in a low level of volatility for AMZN stock following results. The long straddle options strategy suggests the stock rises or falls 8% from the $1650 strike price. It places the stock in a trading range between $1,510 and $1,790 by options expiration on February 15. However, it is worth noting that the number of bullish calls outweighs bearish put bets by a ratio of nearly 2 to 1, with roughly 1,400 open call contracts to just 900 open put contracts, suggesting the stock rises. The value of the open calls is not a small wager, nearly $10 million.

Bearish Amazon Technical Chart

Although the options suggest the stock will rise, the technical chart for Amazon is bearish and suggests that the stock can fall over the longer-term. The shares have been trending lower since peaking in September at a price of around $2,050. The chart shows that stock is currently residing at a technical support level around $1,620. Should it fall below that price it is likely to fall to the next level of support around $1,475, a drop of 10 percent from its current price of around $1,650.

Another bearish indicator is the relative strength index, which has been trending lower since it peaked at an overbought level above 80 in early 2018. It would suggest that bullish momentum is still leaving the stock and has further to fall.

Amazon's biggest weakness today may be investors' continued high expectations of a stock that's risen 34-fold in the past decade, and which has had seemingly limitless upward potential in recent years.

That may be changing: The stock fell more than 30% off its high last year. And while Amazon's shares have recouped part of that loss this year, the stock may struggle as investors try to revalue the equity as sales slow. That may prompt investors more than ever to focus on the future of its cloud business.

Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.