Amazon Warehouse Kentucky Getty Images
An warehouse in Kentucky. Getty Images

Amazon (Nasdaq: AMZN) is expected to report a huge profit increase in the fourth quarter compared to the last quarter of 2012, as subscriptions to Amazon Prime, clients using Amazon’s web services and fulfillment services, video game and console sales and Kindle e-reader and tablet sales all increased.

The Seattle, Wash.-based company, which will report its fourth-quarter results at 5 pm EST on Thursday, is expected to report net income of $318.87 million, or 68 cents per share, compared with $97 million or 21 cents per share a year earlier. Revenue is projected to increase 22.5 percent, from $21.27 billion in the fourth quarter of last year, to $26.06 billion.

Excluding one-time items, analysts expect earnings per share of 66 cents per share compared with 21 cents per share in the fourth quarter of last year.

“Amazon is one of the best plays on the 10 Internet growth factors (mobile, cloud, same-day delivery, alternative payments, etc…),” according to RBC Capital Markets analysts Mark Mahaney and Andre Sequin in a Jan. 17 note. “And we believe Amazon is at a fundamental inflection point” regarding revenue growth and margin expansion.

Growth in membership services and strong holiday sales helped boost Amazon’s profits in the fourth quarter, though the year-over-year comparison is a bit inflated from changes in the timing of Kindle launches.

Memberships to Prime, a $79 per year fee for free two-day shipping, unlimited streaming of movies and TV shows and other offers, now add up to more than 20 million globally. More than one million Amazon users went Prime in the third week of December.

The day after Christmas, Amazon CEO Jeff Bezos said in a statement that Prime members have “a voracious appetite,” and membership “continues to grow.”

At the end of the third quarter in 2013, Amazon had about 234 million active users.

In addition to Prime, Amazon benefitted from more large enterprises like NASA and the CIA using Amazon Web Services (AWS) in the fourth quarter. AWS is a cloud-computing platform that helps businesses and organizations cut costs for IT infrastructure. Analysts at UBS expect AWS to bring in $3 billion of revenue in 2013.

“AWS (Amazon Web Services) has grown to be the pre-eminent public cloud-computing platform,” UBS analyst Eric Sheridan wrote in a November note.

At the end of December, Amazon announced that Chinese businesses and government organizations would begin using AWS in early 2014.

Amazon is also profiting from a greater number of third-party sellers, who fork over up to 15 percent of their revenues to Amazon. The number of active Marketplace Sellers paying for the additional Fulfillment by Amazon (FBA) service, which allows sellers to store their inventory in Amazon’s facilities, have Amazon ship their products directly to customers, and offer Prime benefits, grew by more than 65 percent in 2013 from 2012, according to company data. In the fourth quarter, FBA shipped more units worldwide than the total units combined in all of 2009 and 2010. During the holiday season, the number of FBA units shipped grew more than 50 percent from the year earlier season. Within FBA units, apparel is the fastest-growing category, doubling from 2012 to 2013, Amazon announced earlier this month.

Media sales, which include video game hardware and Kindle products, dominated the fourth quarter. About a third of Amazon’s sales come from media, and video game-related sales make up 10-15 percent of Amazon’s media segment, according to UBS research. With the launches of the new PS4 and XB1 video game consoles in November, video game hardware sales in the U.S. grew 60 percent in the fourth quarter of 2013 compared to the year earlier period, according to UBS. Data on Amazon’s video game hardware sales is not available, but analysts expect the retailer performed just as well or better than Wal-Mart and Target, who both reported video games and consoles as top sellers on Black Friday.

On Cyber Monday (Dec. 2), Amazon recorded more than 36.8 million customer orders, a 39 percent increase over last year’s Cyber Monday.

Record-breaking online holiday shopping, the introduction of installment payment plans and multiple price reductions on Cyber Monday and Christmas drove strong Kindle Fire HDX sales. In 2012, the 7-inch Kindle Fire began shipping in mid-September, but in 2013, both the new 7-inch and 8.9-inch Kindles began shipping in the fourth quarter, pushing revenue from both the hardware sales as well as the accompanying content purchases into the 2013 fourth quarter. In addition, the fourth quarter in 2012 suffered from a stock-out of the Kindle Paperwhite e-reader, which delayed shipments into the first quarter of 2013. The International Data Corporation estimates that Amazon sold six million Kindle Fire tablets in the fourth quarter of 2012.

In the past year, the e-tailer has also been building fulfillment centers in more locations (including China, Italy, Spain, the U.K. and India as well as in the U.S.) to reduce the average shipping distance for packages. Some of the added shipping leverage may have contributed to improved fourth quarter profits, but analysts admit quantifying it for a particular time period is difficult.

Amazon shares have traded up 9 percent since the company reported third quarter earnings and rose 55 percent in 2013 (compared to a 30 percent increase in the S&P 500).