Amazon.com last night posted a quarterly profit that missed Wall Street estimates.
The company also unveiled a costly new shipping programme that heightened concern about falling margins, sending its shares tumbling 14 per cent.
Gross margin fell to 23.1 per cent from 23.9 per cent due in part to lower prices and free shipping as part of the company's goal of attracting more customers and boosting overall profits.
Fourth-quarter net earnings more than quadrupled as a weak dollar boosted record holiday sales and the company recorded a $244 million tax benefit. But incentives like free shipping and discounts cut into profits and hurt margins.
Net income during the quarter, which includes the critical holiday season, rose to $346.7 million from $73.2 million a year ago.
Sales rose 31 per cent to $2.54 billion as lower prices and free shipping attracted customers during the critical Christmas season. Excluding the benefits from changes in foreign exchange rates, sales rose 26 per cent, the company said.
Sales in North America, the company's biggest market, rose 22 per cent to $1.39 billion while international sales shot up 43 per cent to $1.15 billion, helped by new offerings such as a DVD rental service in Britain.
The company also launched Amazon Prime, a new programme allowing members to pay $79 annually for unlimited, express two-day free shipping with no minimum purchase requirement.