updated 2/1/2007 6:06:09 PM ET 2007-02-01T23:06:09

Amazon.com Inc. said Thursday its fourth-quarter earnings fell 51 percent from a year ago in the all-important holiday season, hurt by higher tax-related charges. The Internet retailer’s results were just ahead of Wall Street’s expectations.

For the three months ended Dec. 31, Amazon.com said it earned $98 million, or 23 cents per share, compared with $199 million, or 47 cents per share, in the year-ago period.

Analysts polled by Thomson Financial were expecting earnings of $90.4 million, or 21 cents per share, on $3.77 billion in sales.

The Seattle company said the most recent results were hurt by $91 million in income tax expenses in the quarter, compared with a tax benefit of $38 million in the comparable 2005 period.

Net sales for the three-month period were $3.9 billion, up 34 percent from $2.98 billion in the fourth quarter of 2005. The company said sales would have been up by 30 percent without the favorable $122 million impact of changes in foreign exchange rates.

Piper Jaffray analyst Safa Rashtchy said the sales growth could be tempered by concerns about significantly weaker margins.

“It seems like pretty good results, although kind of typical of Amazon’s performance — it’s usually one good news and one bad news,” Rashtchy said.

The company said sales growth was driven in part by increased memberships in the Amazon Prime program, which offers unlimited two-day shipping but has prompted shoppers to buy more products across several categories.

“Adoption of Prime is a big driver for us,” Chief Financial Officer Tom Szkutak told reporters in a Thursday afternoon conference call.

Shares in Amazon.com closed up $1.03, or 2.7 percent, at $38.70 Thursday on the Nasdaq Stock Market.

The results were released after the market closed. In after-hours trading, shares fell 45 cents, or about 1.2 percent.

For the year, Amazon.com said it earned $190 million, a 47 percent drop from $359 million in 2005. Revenue was up 26 percent to $10.71 billion, compared with $8.49 billion in the previous year.

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