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Taxes Cut Amazon’s Q4 Earnings 50%

2/02/2007 01:21:00 PM Eastern

Seattle, Wash. — Amazon.com’s net profit fell 50 percent to $98 million for the fourth quarter, ended Dec. 31.

The company attributed the shortfall to a $130 million hike in income taxes over the year-ago quarter, when the e-tailer enjoyed a tax benefit of $38 million. Minus the effect of taxes, operating income grew 20 percent to $197 million for the three months.

Net sales for the period increased 34 percent to nearly $4 billion, which also reflects the impact of favorable changes in foreign exchange rates.

In North America, net sales grew 31 percent to $2.2 billion while operating income rose 33 percent to $92 million. Broken out by segment, sales of general merchandise, of which consumer electronics contributes the lion’s share, rose 51 percent to $876 million. Sales of media, which includes books, entertainment and PC software, and all video gaming products, increased 21 percent to $1.3 billion in the North American market.

“We had a record holiday season with accelerating revenue growth and significant sequential improvement in operating leverage,” said Jeff Bezos, founder and CEO of Amazon.com. “Amazon Prime members spent more with us across categories as they took advantage of unlimited free two-day shipping.”

The Amazon Prime program, introduced one year ago, provides unlimited two-day shipping on over a million eligible items for a flat membership fee of $79 per year, and next-day delivery for an additional $4 per item.

For the full year, total net income fell 47 percent to $190 million as income tax expense increased $92 million, and operating income declined 10 percent to $389 million due mainly to increased spending on technology and content, the company said. Net sales increased 26 worldwide to $10.7 billion.

North America accounts for 55 percent of Amazon’s total sales.