Amazon shares fall after Q4 profit decline

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SEATTLE-- Shares of Amazon.com Inc. fell more than 3% Friday after the Internet retailer reported its fourth-quarter profit dropped by half despite higher sales during the holiday shopping season.

After the market closed Thursday, the company reported it earned $98 million, or 23 cents per share, in the three months ended Dec. 31 compared with $199 million, or 47 cents per share, in the year-ago period.

Net sales rose 34% to $3.9 billion from $2.98 billion in the fourth quarter of 2005. The company said sales would have been up by 30% without the favorable $122 million impact of changes in foreign exchange rates.

The Seattle-based company said the most recent earnings results were hurt by $91 million in income tax expenses in the quarter, compared with a tax benefit of $38 million in the comparable 2005 period.

Analysts polled by Thomson Financial were expecting earnings of 21 cents per share on $3.77 billion in sales.

Amazon.com shares sank $1.42, or 3.6%, to $37.28 in morning trading on the Nasdaq Stock Market. Its shares have traded in a 52-week range of $25.76 to $44.04.

Piper Jaffray analyst Safa Rashtchy said concerns about significantly weaker margins could temper enthusiasm about the company's sales growth.

"It seems like pretty good results, although kind of typical of Amazon's performance -- it's usually one good news and one bad news," Rashtchy said.

He added that company spending on technology, long a concern for investors, seemed relatively stable: "At least it didn't increase."

The company said sales growth was driven in part by increased memberships in the Amazon Prime program, which offers unlimited two-day shipping but has prompted shoppers to buy more products across several categories.

"Adoption of Prime is a big driver for us," Chief Financial Officer Tom Szkutak told reporters in a Thursday afternoon conference call.

Sales of media products were up 25% to about $2.5 billion, Szkutak said. Meanwhile, revenue from electronics and other general merchandise was up 55%, to $1.4 billion.

Net shipping costs were about $125 million, up 37% from costs of $91 million a year ago, the company said.

For the year, Amazon.com said it earned $190 million, a 47% drop from $359 million in 2005. Revenue was up 26% to $10.71 billion, compared with $8.49 billion in the previous year.

The company said it expects first-quarter sales of between $2.85 billion and $3 billion, a growth rate of 32% from a year earlier. Amazon.com also predicted yearly sales of between $13 billion and $13.7 billion, representing growth of up to 28%.

One notable factor in future sales -- the seventh Harry Potter book -- was offered for pre-sale on Amazon.com on Thursday. The company didn't release hard numbers but said Thursday's sales of "Harry Potter and the Deathly Hallows," which will be released July 21, already had tripled the previous Potter book's first day of sales.
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