Amazon's fourth quarter net income fell 45%, as sharply higher revenue failed to keep pace with increased spending on order fulfillment and digital content.
This is a trend that has become the norm for the world's largest online retailer.
The company's financial results missed Wall Street's expectations - but investors sent Amazon's stock up over 7% in after-hours trading.
It has been investing a lot of its income into enhancing its distribution network and its Kindle business as part of a long term growth plan.
Although profit margins have been thin, investors continue to be more than forgiving. Its stock price gained 45% in 2012. It has risen another 4% so far this year.
Amazon.com said last night that it earned $97m or 21 cents per share, in the three months from October to December. That is down from $177m, or 38 cents per share, the same time a year earlier.
Revenue for the crucial holiday quarter grew 22% to $21.27 billion from $17.43 billion. Analysts had expected earnings of 28 cents per share on revenue of $22.26 billion.
"We're now seeing the transition we've been expecting," said Jeff Bezos, founder and chief executive. "After five years, eBooks is a multi-billion dollar category for us and growing fast - up approximately 70% last year."
Though revenue fell short of expectations, analysts said Amazon's profit margin was much better than expected at 24.1% compared with 20.7% a year earlier. This could signal that Amazon is starting to reap some benefits from its investments.
Amazon's operating income jumped 56% to $405m from $260m in the fourth quarter of 2011. That is much better than the company's guidance, which was for an operating loss of $490m to an operating income of $310m.
For the current quarter, Amazon expects revenue of $15 billion to $16.6 billion. Analysts had expected revenue of $16.86 billion.
For all of 2012, the company booked a net loss of $39m, or 9 cents per share, down from a profit of $631m, or $1.37 per share. The shortfall was due to a 60 cent per share loss in the third quarter of the year, which resulted from a charge related to its stake in online deals site LivingSocial.
The company said it was also due to heavy spending on its Kindle business, new geographic locations and video content. It also said it hired about 50,000 temporary workers at its distribution centres across the US during the key Christmas season.
Revenue in 2012 grew 27% to $61.09 billion from $48.08 billion, slightly below analysts' expectations of $62.1 billion.
Few large corporations are able to grow revenue at such a pace year after year. Apple is a notable example. The iPad maker increased revenue by 29% in 2012, to $165 billion. But investors punished Apple's stock after it reported earnings last week, due to signs that the company's profit margin is shrinking and its iPhone faces stiffer competition in overseas markets.