Amazon shares fell sharply in after hours trading after the retail giant posted a big drop in profits.

Net sales grew 22 per cent to $2.14bn in the second quarter ended 30 June 2006, but operating income fell 55 per cent to $47m. Changes to accounting for foreign currency made up for $24m of the shortfall.

Amazon CEO Jeff Bezos talked up the shop's membership scheme - Amazon Prime - where users pay $79 for a year's worth of free shipping. Bezos also said investment in technology would slow.

"We're looking forward to the coming decrease in our year-over-year growth rates in technology spending in the second half of 2006."

The US still makes up the bulk of sales - $1.16bn, while the UK, Germany, Japan, France and China sold $982m worth of books.

Amazon started selling groceries during the period - the US site carries 14,000 dry goods. The cost of outbound shipping grew 28 per cent to $188m - the company expects shipping costs to continue to grow.

More details from Amazon here. ®