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Last Updated: Wednesday, 26 October 2005, 21:33 GMT 22:33 UK
Amazon warning of slow holidays
Amazon's margins are coming under pressure
Online retailer Amazon.com is looking at a bleak holiday season of slowing sales growth, the company has warned.

The firm, which started out as a book seller, said net profits of $30m (17m) for the three months to September had been hit by a legal settlement.

The announcement was accompanied by a forecast of 13-24% sales growth for the fourth quarter - well below the 31% recorded in the same period of 2004.

Shares in Amazon closed down almost 14% at the close of trade in New York.

Despite the slowdown in profits - mostly the result of the $40m cost of settling a patent lawsuit - sales continued to grow during the third quarter, Amazon said.

Sale drivers

Total revenue was $1.86bn, up 27% - although the 1.6 million copies of the sixth book in the Harry Potter series, the season's big seller, were no more than a "break-even event", Amazon said.

The main driver for revenue was sales of general merchandise and electronic goods, up 43% to $491m. Books, music and other media items still make up almost three quarters of overall sales, however.

One concern for analysts was the company's narrow margins.

Amazon said it made an operating profit margin of 6.9%, down from 7.4% a year earlier - a figure which Safa Rashtchy, analyst at Piper Jaffray, warned could slim further in the face of consumer concerns and the impact of rising oil prices on Amazon's spiralling shipping costs.

It has recently begun a programme in the US, "Amazon Prime", which offers free unlimited delivery to anyone paying a $79 a year flat fee.

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