Amazon Quarterly Profit Slides, Tops Expectations; Sales Surge gave a 2007 sales forecast that topped Wall Street targets and posted a 51% drop in quarterly profit that still beat expectations, driving its shares up 6%.

Shares of Amazon initally rose to $41 in after-market trading but later edged below their closing price of $38.70 on the Nasdaq.

Amazon fourth-quarter net income dropped to $98 million, or 23 cents per share, from $199 million, or 47 cents per share, a year earlier, due to higher taxes and investment spending. Sales rose 34% to $3.99 billion.

Wall Street analysts, on average, had expected the company to post earnings of 21 cents per share on sales of $3.78 billion, according to Reuters Estimates.

Operating income rose 20 percent to $197 million. The company had been anticipating operating income to range between $145 million and $235 million on sales of between $3.65 billion and $3.95 billion.

"People see 34% revenue growth, which is good," said Global Crown Capital analyst Martin Pyykkonen, explaining the share rise. "It's been trending down so this is definitely a positive surprise on the revenue side." "You feel pretty good about revenue growth going forward," Pyykkonen added, calling the profit margin outlook for 2007 "lackluster."

Tax expense equaled 22 cents per share during the quarter, while a year ago the company received a tax benefit of 9 cents per share. Excluding a favorable impact from currency exchange rates, sales rose 30%.

Sales were driven by strength in electronics, which comprise about one third of Amazon's global sales and rose 55% during the quarter. Operating profit margins narrowed during the quarter, as marketing,technology and content costs rose.

Looking to 2007, Amazon gave full-year targets for operating earnings of between $355 million and $505 million on revenue of $13 billion to $13.7 billion. Analysts had been expecting revenue of $12.57 billion for the year, according to Reuters Estimates.

For the first quarter, Amazon expects operating income of $82 million to $122 million and net sales of $2.85 billion to $3 billion. Analysts had been expecting sales of $2.77 billion, according to Reuters Estimates.

The Seattle-based company, which began as an online book seller but is now the most popular e-commerce Web site behind online auctioneer eBay, has seen falling profit margins and decelerating sales growth in recent years.

To stem market share losses to a host of on- and off-line rivals, Amazon has invested heavily in its business and expanded into new categories, including auto parts and groceries.

Amazon trades at 51 times estimated 2007 earnings, about three times that of many bricks-and-mortar retailers such as Wal-Mart or Best Buy, and above eBay at 25.

Amazon -- whose recent initiatives include a new toy category after a Toys 'R Us partnership fell through last year and a service allowing consumers to download videos -- had said its technology spending would slow in the fourth quarter.

Spending on technology rose 34 percent to $177 million during the quarter from $132 million, That was below the 42% rise year-over-year rise in the third quarter.