Amazon: Good but not good enough

NEW YORK (CNNMoney.com) -- Amazon.com Inc. reported healthy increases in third-quarter sales and earnings that beat analysts' expectations fueled by competitive prices and free shipping.

But investors may have been expecting even more from the company. Shares of the online retailer fell more than 8 percent in after hours trading.

The stock soared more than 10 percent in regular trading on the Nasdaq Tuesday in anticipation of the third quarter results, hitting a new 52-week high in the process.

Amazon's (Charts, Fortune 500) revenue rose 41 percent to $3.26 billion from $2.31 billion in the year-ago quarter, beating analysts' expectations of $3.14 billion in sales.

The Seattle-based company reported a net profit of $80 million, or 19 cents per share, up 313 percent from $19 million, or 5 cents per share, in the third quarter last year. Analysts polled by Thomson First Call were expecting earnings of 18 cents per share.

The company said that Amazon Prime, a membership program that allows unlimited express shipping for a flat annual fee, helped boost revenue in the quarter.

"Customers continue to respond to our low prices, our free shipping, and the benefits of Amazon Prime," said Jeff Bezos, founder and CEO of Amazon in a written statement.

Last week, online auction giant eBay (Charts, Fortune 500), one of Amazon's competitors, also reported earnings that beat analysts' estimates.

Shares of Amazon.com have surged more than 155 percent this year thanks to strong sales and profit growth.

But one analyst suggested that expectations were extremely high for Amazon heading into the third quarter report, making it tough to satisfy Wall Street.

So even though Amazon's sales forecast for the fourth quarter was higher than consensus estimates, it may have disappointed some investors who were hoping for even stronger sales guidance.

The company said that it expected to report sales of between $5.1 billion and $5.45 billion in the fourth quarter. Analysts had been forecasting sales of $5.16 billion.

For the full year, the company said it now expected revenue of between $14.263 billion and $14.613 billion, slightly ahead of consensus estimates of $14.19 billion.

"The stock's guidance for the year was a little below what the Street expected," analyst Colin Sebastian of Lazard Capital said after the results were announced, "and that could be what's bothering the stock after-hours."

However, Sebastian added that the company could be taking a conservative approach ahead of holidays.

Amazon shipped a record 2.2 million copies of the latest "Harry Potter" book in the third-quarter. However, the book was priced near cost and Amazon CFO, Thomas Szkutak, said on a conference call to analysts that "Harry Potter" sales were, "slightly less than a break even event for us."

Amazon priced the "Harry Potter" book low to attract traffic to the site, but Szkutak noted that the strategy has had a negative impact on the company's gross margin.

Brian Bolan, an analyst at Jackson Securities, said that the company's "margin contraction" is responsible for the fall in Amazon's stock in after-hours trading.

The company is lowering prices and increasing selection ahead of the holiday season, Bolan said, but when you have more products at lower prices, "you end up taking a bigger hit."