kindleInternet retailer Amazon has warned of a possible $200m operating loss for the first quarter of 2012 despite reporting that sales of its ebook reader Kindle increased by 177% over the nine-week Christmas period.

Amazon said Q4 and the full year's sales were up, but profits fell. Its prediction that first quarter profits could be 167% lower than last year looks likes the company is in freefall.

Grateful

"We are grateful to the millions of customers who purchased the Kindle Fire and Kindle e-reader devices this holiday season, making Kindle our bestselling product across both the U.S. and Europe," said Jeff Bezos, founder and CEO of Amazon.com. But it clearly won't be enough.

"Our millions of third-party sellers had a tremendous holiday season with 65% unit growth and now represent 36% of total units sold," he said.

Yet operating income for Q4 was $260m, compared with $474m last year. Net income fell 58% to $177m in Q4, compared with $416m in 2010. That was on net sales up 35% to $17.43bn ($12.95bn). That means net profits represented just 1% of sales in Q4.

Full year

For the full year, Amazon reported that its operating income decreased 39% to $862m, compared with $1.41bn in 2010. Net income decreased 45% to $631m in 2011, compared with net income of $1.15bn in 2010. The lower profits were off the back of net sales increasing 41% to $48.08bn, compared with $34.20bn in 2010.

Booksellers will be suspicious that Amazon is prepared to swallow huge losses just to drive readers from paper- and hardbacked books to Kindles, wiping out book stores from our high streets.