Amazon.com has reported a drop in profit margins from the previous quarter, surprising investors betting on continued improvement at the world's largest Web retailer, and its shares fell 9 per cent.
Third-quarter results topped Wall Street average targets, and the company forecast fourth-quarter revenue ahead of many analysts' views, but that was not enough to satisfy investors who have pushed the shares up to a valuation far beyond peers.
Amazon shares dropped to $91.49 after a frenzy of trading before the bell pushed them up more than 10 percent to $100.82 on Nasdaq - its first close above the $100 mark since 2000.
Despite recent bullish sentiment, some on Wall Street had warned that recent gains in Amazon's operating profit margin were not sustainable, and that more periods of investment spending, which tend to depress margins, were inevitable.
Amazon, after delighting investors with impressive results in the first two quarters, said third-quarter net income more than quadrupled to $80 million, or 19 cents per share, from $19 million, or 5 cents per share, a year earlier.
Revenue, boosted by the latest Harry Potter book and double-digit growth both at home and abroad, rose 41 percent to $3.26 billion. Excluding "Harry Potter and the Deathly Hallows," sales rose 35 percent, Chief Financial Officer Tom Szkutak said.
The results beat average Wall Street estimates of 18 cents per share in profit on $3.13 billion in revenue, according to Reuters Estimates.
The popular Harry Potter book, which was heavily discounted, had a negative effect on gross margins in the quarter, which fell to 23.4 percent of worldwide sales from 23.8 percent a year ago and 24.3 percent in the prior quarter.
Operating income rose to $123 million from $40 million, above Amazon's own forecast for $75 million to $110 million.
For the fourth quarter, Seattle-based Amazon said it expects net sales of $5.1 billion to $5.45 billion, with operating income of $221 million to $291 million.
Amazon, the second-most-popular e-commerce site, behind auctioneer eBay Inc, has pared the rate of its spending growth in 2007, improving margins and boosting profit while lifting its share price by 136 percent since January 3.