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One reason bears remain skeptical about Amazon.com (AMZN) is its low margins.

This is the bane of most retailers. While the company's sales have doubled in the last two years, its profits are actually down from 2010, as less of the money has come down to even operating income.

Yet the shares remain near $200 each, which means a PE of over 145, and investors are right to wonder why.

The reason is the promise of wider margins, with constant sales acceleration, over the next several years. And not just from automating its warehouses with Kiva robots.

As clouds mature, Amazon's AWS cloud is poised to become a profit machine. It has enormous market share, and the Application Program Interface, or API, which defines how customers interact with it is becoming an industry standard, despite being essentially proprietary.

This doesn't just mean big customers writing big checks each month. It also fuels the growth of Amazon's networking capabilities, and brings it into new markets.

But there's a lot more:

  • Tablets are becoming an essential distribution channel for digital content. Amazon's low prices on its Kindle tablets are making it Apple's (AAPL) most serious threat in this area.

  • In addition to its own tablets, Amazon is also ramping up content sales on other platforms, like Sony's (SNE) Playstation 3 game machine. With its Amazon Prime shipping customers getting its video content free (for now) Netflix (NFLX) needs to watch its back.

  • As Amazon adds in-app purchase capability, Amazon is slowly becoming a bank.

This last may be the most important point of all. Amazon is increasing its ability to process transactions, which should give it a share in customer float. Its Flexible Payments Service (FPS) is bringing it merchant accounts. Its cloud has been certified for use by payment systems, a very large market. It brands its own credit cards.

There are more ways into a customer's wallet than just selling them a book. Amazon is getting into both consumer and business wallets in so many ways, it's really just a matter of time before the bottom line starts accelerating.

And the fact that some analysts have turned bearish on the stock should even give you a buying opportunity.

Source: Amazon Prepares To Expand Margins