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By Leena Rao

Amazon (AMZN) reported lower-than-expected fourth-quarter earnings today. Net income decreased 45% to $97 million in the fourth quarter, or $0.21 per diluted share, compared with $177 million, or $0.38 per diluted share, in the fourth quarter 2011. Net sales increased 22% to $21.27 billion in the fourth quarter, compared with $17.43 billion in the fourth quarter 2011. Analysts expected earnings of $0.27 cents a share, on $22.26 billion in sales. The expectations of course are high because the fourth quarter includes the holiday shopping season.

"We're now seeing the transition we’ve been expecting," said Jeff Bezos, founder and CEO of Amazon.com. "After five years, eBooks is a multi-billion-dollar category for us and growing fast -- up approximately 70% last year. In contrast, our physical book sales experienced the lowest December growth rate in our 17 years as a bookseller, up just 5%. We're excited and very grateful to our customers for their response to Kindle and our ever-expanding ecosystem and selection."

Operating income increased 56% to $405 million in the fourth quarter, compared with $260 million in the fourth quarter 2011. The company currently has $8 billion in cash.

For the year, net sales increased 27% to $61.09 billion, compared with $48.08 billion in 2011. Operating income decreased 22% to $676 million, compared with $862 million in 2011. The company took a loss of $39 million in the year, or $0.09 per diluted share, compared with a net income of $631 million, or $1.37 per diluted share, in 2011.

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Q4 for Amazon was eventful on the product, e-commerce and cloud fronts. The Kindle Paperwhite made its debut, and while the device was sold out for some time, Bezos admitted that these devices don't make Amazon any profit. The company made a number enhancements to Cloud Drive and expanded content for its streaming service. Amazon's EC2 service saw a number of outages in the quarter as well.

For the holidays, Amazon said that this quarter brought its biggest holiday season ever, with over 26.5 million items ordered worldwide on its peak day. Amazon's tablet was the most popular item for customers, the company said in December. The Kindle Fire HD was the No. 1 best-selling, most gifted and most wished for product. In addition, Cyber Monday 2012 was the biggest day ever for Kindle says worldwide, Amazon added, and during the holidays, apps and game sales were up 250% year over year.

For the first quarter of 2013, net sales are expected to be between $15 billion and $16.6 billion, or to grow between 14% and 26% compared with the first quarter 2012. Operating income (loss) is expected to be between $285 million and $65 million, compared to $192 million in the prior-year period.

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Source: Amazon Misses: Q4 Sales Up 22% To $21.3 Billion, Net Income Down 45% To $97 Million