NEW YORK (CNNMoney.com) -- Amazon.com Inc. said Tuesday sales jumped 22 percent in the latest quarter but the online retailer's earnings fell short of Wall Street targets after it severed its contract with Toysrus.com and increased spending on technology.

Shares of Amazon (Charts) sank over 10 percent in after-hours trading after falling 2.1 percent during regular trading on Nasdaq.

The online retailer reported earnings of 5 cents a share for its second quarter ended June 30, down from 12 cents a year earlier.

Analysts had been looking for profits of 6 cents a share, according to a survey by Thomson First Call.

Net income fell to $22 million from $52 million. Sales climbed to $2.14 billion from $1.75 billion, about in line with forecasts of $2.1 billion.

Amazon's sales in its North America market -- which included the United States and Canada -- were $1.165 billion, or up 21 percent versus the year-earlier quarter.

International segment sale through its U.K., German, Japanese, French and Chinese sites, came in at $982 million, or up 24 percent from the same period of 2005. Total worldwide sales increased 37 percent to $624 million.

Amazon's results suffered from the Toys 'R' Us departure and the retailer's plans to boost investments in the toy category, according to Dan Geiman, an analyst at McAdams Wright Ragen.

Earlier this month, Amazon announced the opening of its new toy and baby stores after a court decision allowed Toys 'R' Us to dissolve its partnership with Amazon and set up its own Web site. (Full story.)

"[Amazon's] been heavily investing in technology spending over the last few quarters and analysts were looking for some growth [in the near term], but now they're going to be heavily investing in the toy category," Geiman said.

"If it's not one thing it's another, at this point."

In a statement, CEO Jeff Bezos also said the company was focused on investing in Amazon's new membership program Amazon Prime and future technology initiatives.

"Amazon Prime gets customers their products fast, and our investments in technology position us to innovate in seller platforms, web services, and digital. We're looking forward to the coming decrease in our year-over-year growth rates in technology spending in the second half of 2006," Bezos said.

"Given the market reaction, people expected improved margins sooner," said Paul Keung, an analyst with CIBC World Markets.

Looking forward, the Seattle-based company said it expects sales to be between $2.17 billion and $2.33 billion for the third quarter and $10.15 billion and $10.65 billion for the full year.

That compares with analysts' average forecasts of $2.21 billion for the third quarter and $10.14 billion for the full year, according to First Call.

Though Amazon did not give earnings-per-share guidance, it said it expects operating income of $7 million to $42 million for the current quarter, or a decline of between 87 percent and 24 percent compared with the same period last year.

For the full year, the company expects operating income to be between $310 million and $440 million, or between a decline of 28 percent and growth of just 2 percent, versus 2005.

That compares with a previous forecast of $390 million to $520 million.

Geiman said it was primarily Amazon's lower guidance for the year that was impacting the stock after hours.

Shares of Amazon are down 27 percent so far this year, as of yesterday's close.

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