Amazon profits take a dive

January 29, 2013: 5:13 PM ET

The e-commerce giant's profits sank 45% even though sales were up.

120912025658-kindle-fire-new-gallery-horizontalFORTUNE -- Amazon sales may be up, but profits took another plunge during the company's most recent quarter, in large part due to the company's ongoing expansion.

In the fourth quarter, Amazon (AMZN) sales rose 22%, compared with the same time in 2011, to $21.3 billion; profits dropped to $97 million, or 21 cents a share, down from $177 million the year prior. Those numbers fall short of Wall Street estimates of profits of 28 cents a share on revenues of $22.26 billion.

Analysts were paying close attention to Amazon's earnings, not just because the holiday season is typically the company's strongest period, but to gauge how the company's expansion efforts are likely to continue to impact profits. Over the last year, the company has invested heavily in building more fulfillment centers and spending to get its Kindle readers and tablets in more consumers' hands. During the company's earnings call, CFO Tom Szkutak said that 20 new fulfillment centers were up and running by the holiday season—in line what the company had projected last quarter. (In total, Amazon now has 89 warehouses worldwide.)

MORE: Amazon falling out of favor?

Although Amazon is typically reticent about breaking down sales for different segments of its media business, CEO Jeff Bezos suggested that the Kindle is a healthy, growing segment. "We're now seeing the transition we've been expecting," said Bezos said in a statement. "After 5 years, eBooks is a multi-billion dollar category for us and growing fast – up approximately 70% last year. In contrast, our physical book sales experienced the lowest December growth rate in our 17 years as a book seller, up just 5%. We're excited and very grateful to our customers for their response to Kindle and our ever-expanding ecosystem and selection."

On an earnings call, Szkutak also played up the user growth of Prime, its $79 a year loyalty reward program, and Prime Instant Video, its video streaming initiative for Prime subscribers. In particular, Prime Instant Video usage has ramped up year-over-year. However, Szkutak did not disclose numbers.

Amazon's stock climbed 11% in after-hours trading to $288 a share.

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About This Author
JP Mangalindan
JP Mangalindan
Writer, Fortune

JP Mangalindan is a San Francisco-based writer at Fortune, covering Silicon Valley. Since joining in 2010, he has written on a wide array of topics, from the turnaround of eBay to the evolution of net neutrality. A graduate of Fordham University, Mangalindan has also written for GQ, Popular Science, and Entertainment Weekly.

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