updated 2/2/2006 5:31:34 PM ET 2006-02-02T22:31:34

Amazon.com Inc. said Thursday that fourth quarter earnings fell 43 percent in the all-important holiday season compared to the same period a year ago, when the company had a big one-time gain.

For the three months ended Dec. 31, the Internet retailing giant said it earned $199 million, or 47 cents per share, compared with $347 million, or 82 cents per share in the last three months of 2004.

The Seattle-based company said the most recent results included a one-time tax benefit of $38 million. In the last three months of 2004, Amazon said it recorded a $239 million one-time tax gain from losses incurred in previous years.

Without one-time items, the company would have earned 26 cents per share in the most recent quarter, compared with 24 cents per share in the year-ago period, Chief Financial Officer Tom Szkutak said.

Net sales for the three-month period were $2.98 billion, up 17 percent from $2.54 billion in the fourth quarter of 2004. The company said sales would have been up by 22 percent if not for the unfavorable, $121 million impact of changes in foreign exchange rates.

Analysts polled by Thomson Financial were expecting earnings of 21 cents per share, on revenue of $3.08 billion.

In a conference call with journalists, Szkutak said the company’s various free shipping offers had saved customers more than $475 million during 2005. The offers include a year-old program called Amazon Prime that allows customers to get unlimited two-day shipping for $79 per year.

Szkutak conceded that Amazon Prime is “very expensive” for the company, but he said Amazon.com also is seeing customers order more items as a result. He wouldn’t say when the program might be profitable.

“It’s certainly a long-term investment that we’re making on behalf of the customer,” he said.

For the current first quarter, the company said it expects sales of between $2.14 billion and $2.29 billion. For all of 2006, the company is expecting sales of between $9.85 billion and $10.45 billion.

For all of 2005, Amazon.com said it earned $359 million, a 39 percent drop from $588 million in 2004. Revenue was up nearly 23 percent to $8.49 billion, up from $6.92 billion in 2004.

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