The retail business of Amazon.com, Inc (NASDAQ:AMZN) is doing better than expected with an increasing gross profit margin. Its fulfillment is improving as a percentage of retail gross profit, according to analysts at Bernstein Research.

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Amazon is an attractive investment

Bernstein Research analysts Carlos Kijner and Peter Paskhaver said Amazon.com, Inc. (NASDAQ:AMZN) is an attractive investment citing the reason that its EGM revenue in North America has re-accelerated over the past two quarters, and its gross margin increased faster than the consensus estimates.

The analysts added that the fulfillment expenses of the e-commerce giant are becoming slower than gross profits, which indicates a strong trajectory for the business despite huge investments in China.

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In a note to investors, Kijner and Paskhaver wrote, “Amazon is probably the most attractive investment in our coverage (there is one important caveat, as we do think consensus 4Q14 revenue estimates are too high and do not reflect the seasonal pattern associated with revenue growth).

Third-quarter EBITDA and revenue estimates

For the third-quarter, the analysts estimated that Amazon.com, Inc. (NASDAQ:AMZN) will report $1.364 billion in EBITDA and $20.613 billion in revenue compared the consensus estimates of $1.172 billion in EBITDA and $20,862 billion.

Kijner and Paskhaver estimated that the EGM revenue of Amazon.com, Inc. (NASDAQ:AMZN) will rise 28% in North America and 25% internationally on an FX-neutral basis. According to them, FX will serve as a material headwind.

In addition, the analysts expected that the growth rate if North American Other Revenues of Amazon.com, Inc. (NASDAQ:AMZN) would be significantly slower for at 35% compared with the 57.9% in the third quarter last year. The decline was due to the AWS price cut.

Street overemphasizes Amazon’s unit growth

Kijner and Paskhaver pointed out that the Street overemphasized the unit growth of Amazon.com, Inc. (NASDAQ:AMZN), and they do not like it as a stand-alone metric.

According to the analysts, “We do not believe that unit growth alone paints an accurate picture of the health of the overall retail business, in part because we think the average sales price (ASP) of Media units is considerably lower than the ASP of EGM units.”

Kijner and Paskhaver opined that the slowdown in unit growth reflects disproportionately the slow Media unit growth. According to them, Media is a mature and slow-growing category and Amazon.com, Inc. (NASDAQ:AMZN) is a relatively large channel in several sub-categories.

The analyst projected that the e-commerce giant’s gross profit will continue to expand. They estimated a 29.3% increase year-over-year.

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