Happy holidays for Amazon

New York (CNNMoney.com) -- Amazon.com reported fourth quarter sales that beat analysts' expectations, thanks to a strong holiday shopping season.

Despite concerns that a slowdown in U.S. consumer spending could put a dent in Amazon's 2008 sales, the company issued higher than expected sales guidance for the first quarter and the full year.

Amazon's stock initially surged following the news but wound up sliding more than 12% in after hours trading as Wall Street digested lower than expected profit margins. The stock rose slightly in regular trading on the Nasdaq Wednesday.

The Seattle, Washington-based company said that its revenues rose 42% to $5.67 billion. Wall Street had expected revenues of $5.37 billion, according to Thomson First Call.

Amazon's net income came in at $207 million, or 48 cents per share, up 112% from the year-ago quarter, and in line with analysts' estimates.

"This quarter showed accelerated sales growth and record operating profits," Jeff Bezos, founder and CEO of Amazon.com, said in a written statement. "In our view, these unusual financial results are driven by one thing: continuously improving the customer experience."

The company also surprised Wall Street with strong sales forecasts. The company said it expects first quarter sales to be between $3.95 billion and $4.15 billion, higher than Wall Street's projection of $3.92 billion.

But the company's gross profit margins came in at 20.6%, down from last year's 21.3% and below analysts' estimates.

"We expect they're seeing stronger sales growth on lower margin items," Piper Jaffray analyst Aaron Kessler said after the call.

For 2008, Amazon said sales should be between $18.75 billion and $19.75 billion, ahead of analysts' estimates of $18.25 billion.

Amazon (AMZN, Fortune 500) is the world's largest online retailer. As such, the company also is benefiting from strong demand overseas. The company reported that its international sales, which now account for 46% of total sales, went up 46% in the fourth quarter.

Last year, the company launched several new products including an online music store which it plans to roll out internationally later this year.