All Eyes On Cloud 'Breakout' For Amazon, Analyst States

In a report published Thursday, Benchmark analyst Daniel Kurnos previewed Amazon.com, Inc. (NASDAQ: AMZN)'s first quarter results, noting that the first quarter is the least meaningful quarter of the year, but the primary focus is bound to be on the first-ever "breakout" of AWS.

Kurnos noted that data from third-party Synergy Research suggested Amazon still controls nearly 30 percent of the worldwide cloud market, greater than the combined market share of Microsoft Corporation (NASDAQ: MSFT), International Business Machines Corp. and Google Inc (NASDAQ: GOOG) (NASDAQ: GOOGL). The analyst added that the frequency and severity of price cuts in the industry has moderated in the back half of 2014 and into 2015, which bodes well for Amazon's dominant market positioning.

Kurnos continued that he would not be surprised to see Amazon increase its investment overseas to maintain a first-mover advantage and offer a "ready-made" solution for developing countries as their technology infrastructure continues to improve.

However, Kurnos noted that with "heavy" levels of investment spending, AWS is at least "modestly" profitable for the time being, although it is unlikely Amazon will release profit metrics.

Looking forward to the full fiscal year, the analyst is projecting AWS is pacing slightly below a $6 billion run-rate, with profit margins in the single-digit range.

Bottom line, Amazon could see "meaningful" operating income before depreciation and amortization (OIBDA) expansion over the next few years as the company's sales mix continues to shift away from physical products into digital sales and services such as AWS.

Shares remain Buy rated with an unchanged $425 price target.