Amazon losses mount

Amazon's founder Jeff Bezos hopes that one day the losses will the this small

The world's number one online retailer, Amazon.com, has posted sharply higher losses.

The losses have prompted investment banks to downgrade the company's shares, sparking a wave of selling.

Shares of Amazon fell $4.62 to $31.43 in early trade on Thursday.

Amazon's performance is a closely watched benchmark for web retailing. Once championed as the sector's top company, Amazon has recently come in for a lot of criticism from Wall Street analysts.

On Wednesday morning, investment bank Lehman Brothers downgraded the stock from "buy" to "neutral" - a damning indictment in the world of Wall Street.

The internet retailer did see its losses rise by 32%, missing Wall Street's sales estimates.

During the second quarter of the year, the company lost $89m, or 33 cents a share, as its expansion programme continued to cost it dearly.

A year earlier, the firm had lost just $67m during April to June, or 26 cents a share.

A day earlier, Amazon had been hit by the news that it lost its president and chief operating officer Joseph Galli to VerticalNet, a firm specialising in creating web market places.

As a result, Amazon's share price dropped more than one-and-a-half dollars to just over $36 even before the results were announced.

Getting costs under control

Despite the seemingly sharp losses, Amazon is slowly getting costs per customer under control, as revenues rose to $578m, up 85% on a year earlier.

Amazon founder and chief executive Jeff Bezos said: "While we continue to see improvements in all of our businesses, we are especially pleased with the profitability in our US books, music and video group and the unusual growth in our electronics store."

The company added 2.5m accounts during the second quarter, and has now more than 22.5m customers on its books.

Growth of its UK and German subsidiaries was strong, with combined sales up 134% to $73m.

The two sites - amazon.co.uk and amazon.de - added more than 500,000 new customer accounts, to a total of now more than 3m.

And once again the company insisted that it is in good financial health, sitting on a cash pile of nearly $1bn.

This could be enough to see it through to the point where it can move into profit.

Investors, though, may wonder whether they will get a good return on their money.

Amazon has grown rapidly since its launch five years ago, expanding its business from being a mere online bookseller to trading in music, videos, electronics, tools, beauty products, toys, software, furnishings, kitchen and gardening equipment among others.

The firm also conducts online auctions, and struck a partnership with auction house Sotheby's.