Net income for the three months to December 31 was US$98 million (£50 million), down from US$199 million (£101.6 million) in 2005.
Amazon has invested in improving its technology and web site, and in expanding beyond books, but this has eroded profit margins.
However, sales rose 34 per cent to US$3.99 billion (£2.04 billion) in the fourth quarter, compared with US$2.98 billion (£1.52 billion) in 2005. The retailer said revenue would be between US$13 billion and US$13.7 billion (£6.64 billion and£6.99 billion) for the year, beating analysts' expectations.
Amazon.com founder and chief executive officer Jeff Bezos said: 'We had a record holiday season with accelerating revenue growth and significant sequential improvement in operating leverage. Amazon Prime members spent more with us across categories as they took advantage of unlimited free two-day shipping.'
Amazon is still the world's second most popular online retailer, the first is auction site eBay.