Amazon net income for the quarter ending June 30 was $22 million, or $0.05 a share, as compared with $52 million, or $0.12 per share, in its second quarter last year, according to the company.
The results disappointed Wall Street analysts who had anticipated earnings of $0.07 per share.
In after-hours trading Amazon stock was down more than 14 percent from the previous day at $29.46 a share. The report was released after the market closed.
Amazon stressed that lower prices and free shipping spurred sales and that Website memberships doubled this year.
"Our strategy for our business is a straight-forward one," chief executive Jeff Bezos told analysts. "Putting energy into building fly-wheels today that will continue to pay off 10 years from now."
Sales grew 22 percent in the second quarter, to $2.14 billion, compared with $1.75 billion in the same period in 2005, according to the Seattle, Washington, company.
Operating income plunged 55 percent to $47 million in the second quarter, compared with $104 million in second quarter 2005, Amazon reported, attributing the decline to technology and content investment, lower prices, free shipping, the Amazon Prime program, and the $20 million cost of a contract termination.
Amazon lost a hard-fought lawsuit to Toys "R" Us, which was allowed to end Amazon's exclusive right to sell its products on the Internet, and allowing Toys to launch its own online store.
Amazon put money into diversifying inventories having merchandise available to fill orders quickly, Bezos said, while analysts worried about slim profit margins in the grocery sector that Amazon has targeted.
"We are selecting items in that store that we think will be profitable," Bezos said, indicating a focus on bulk items. "We don't just carry a few flavors of Jello; we offer all 80."
Amazon Prime charges $79 for a year of two-day order shipping at no extra charge.
"Our investments in technology position us to innovate in seller platforms, web services and digital. We're looking forward to the coming decrease in our year-over-year growth rates in technology spending in the second half of 2006," he said.
© 2006 Agence France-Presse
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