Amazon stock drops after hours despite upbeat earnings report

Amazon.com may have something with its Kindle e-reader. The company released an analyst-prediction beating third quarter earnings report late today, with both revenue and profit gaining.

But a gloomy margin forecast for the fourth quarter pushed the company’s stock down as much as 4 percent in after-hours trading as of 6:34 p.m. Pacific Time.

The company announced a 16 percent gain in net income of $231 million, or 51 cents a share, for the period ending Sept. 30, compared with net income of $199 million or 45 cents a share for the same period last year.

Its worldwide revenues also leapt 39 percent during the same period to $7.56 billion, with those numbers bolstered by its acquisition last year of online retailer Zappos and the growing availability of the popular Kindle.

Wall Street had projected only 48 cents a share on revenue of $7.37 billion, apparently counting on Amazon’s far-reaching expansion into more digital projects and 13 new national distribution warehouses as a possible drag on the firm’s bottom line.

Still, the world’s largest retailer continued to see most of its revenue generated by sales of items not related to its “core” products of DVDs, books and other digital media.

Amazon still refuses to break out its Kindle-specific number, but on Thursday it spent most of its time touting the device’s speed, pricing, availability, integration with new products and popularity as a major factor in its success going forward.

“Every year for the last 15 years we’ve worked to improve the things customers care about, and this year is no exception,” said Jeff Bezos, founder and CEO of Amazon.com. “This holiday season we’ll have the best prices, the biggest selection, the highest in-stock, and the fastest delivery in our history.”

Its projections for the fourth quarter may prove Bezos wrong, however.

Rising marketing costs, likely related to the Kindle and its new products offerings, took a toll during the third quarter -– as did a jump of 7 percent in operating income the company blamed on “unfavorable” foreign exchange rates.

Amazon said it expects revenue in the range of $12 billion to $13.3 billion with an operating margin of between 3 to 4.2 percent in the fourth quarter, while Wall Street had been predicting $12.3 billion in revenues and an operating margin of around 5 percent.

Free cash flow also decreased 5 percent to $1.83 billion in 2010, compared with $1.92 billion year-over-year.