Amazon.com has missed analysts' revenue and profit expectations in its second quarter which ended on 30 June.
Amazon reported revenue of $1.39bn (£7576m), up 26% from 2003's second quarter but short of the $1.44bn consensus expectation from analysts.
Net income came in at $76m. In last year's second quarter, Amazon reported a net loss of $43m.
Despite missing expectations, Amazon executives were upbeat. "This was another successful quarter for Amazon.com as we continue to execute on our strategy of low prices, broad selection and convenience to our customers," said Tom Szkutak, senior vice-president and chief financial officer.
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Use of the company's free shipping offers reached a "record high" in the quarter and Amazon plans to keep the programme in place indefinitely because it considers it an effective marketing tool, although it acknowledged that it is expensive, the company said.
Amazon sells a wide variety of retail products. It offers free shipping on sales that exceed certain amounts at the websites it runs in the US, UK, Canada, Japan, Germany and France.
This means that the Amazon sites offer free delivery on orders that meet specific amount requirements, as long as the products are being delivered to the country where that site is located, an Amazon spokeswoman said. Shipping related costs hit $119m, up from $106m in 2003's second quarter.
Technology and content costs also went up, because the company is adding IT professionals such as computer scientists and software engineers to improve its websites' customer experience and processes.
"We continue to be successful in hiring top computer scientists and software engineers on an accelerated basis. We believe this is the right thing to do for the customer experience and long-term shareholder value," Szkutak said.
General and administrative costs also rose, particularly legal fees, "as we continue to vigorously defend legal matters", Szkutak said.
Costs in technology and content and in administration are expected to continue increasing in the current quarter and beyond, he said.
North American sales, which include both the US and Canadian sites, reached $792m, a 13% increase, while operating income grew 21% to $66m. International sales, which include the other four sites, rose 50% to $595m. That increase was 38% excluding currency exchange benefits. Operating income reached $35m, up from $13m.
Amazon increased its full-year revenue forecast to between $6.63bn and $6.93bn, up from its previous forecast of between $6.45bn and $6.85bn.
For the current quarter, Amazon expects revenue between $1.43bn and $1.53bn, which would be growth of between 26% and 34% compared with 2003's third quarter.
Juan Carlos Perez writes for IDG News Service