AMZN Amazon.com Inc

By Laura Stevens 

Amazon.com Inc. posted a smaller-than-expected increase in third-quarter profit on a sharp increase in shipping and other expenses.

Shares fell 5.9% in after-hours trading and finished down 0.5% on Thursday.

Amazon's shipping costs rose 43% in the third quarter to $3.9 billion. The retail giant has started laying the groundwork for its own shipping business to add more delivery capacity for the holidays, with the grander ambition of one day hauling and delivering packages for itself, other retailers and consumers.

Some of Amazon's big investments helped guide it toward its current profitability, such as its popular Echo speaker device and its highly automated warehouses and logistics network.

Amazon is also targeting new growth markets like fashion and beauty, where analysts expect quick gains due to its relatively small market share.

In all, earnings rose to $252 million, or 52 cents a share, from $79 million, or 17 cents a share, a year earlier. Analysts surveyed by Thomson Reuters expected earnings of 78 cents a share.

Sales of $32.7 billion, up from $25.36 billion, were within Amazon's own forecast of $31 billion to $33.5 billion.

It issued revenue guidance of $42 billion to $45.5 billion for the fourth quarter, when holiday sales -- and its ability to deliver those orders on time -- are critical to Amazon's success. Analysts were looking for $44.6 billion.

The Seattle-based online retailer's profits were boosted by its Amazon Web Services cloud computing division, which increased sales by 55% to $3.23 billion. The unit, which rents computing power to a variety of startups, government agencies and other corporations, has become a major factor in leading the company to its sixth straight quarter in the black.

Chief Executive Jeff Bezos has said he expects AWS to reach $10 billion in sales this year, even as competitors including Microsoft Corp. and Alphabet Inc. ramp up competitive pressure in the space.

Thursday's numbers bring Amazon closer to investors' long-held hopes of consistent profitability. The company has seesawed in and out of the black since its stock market listing nearly 20 years ago. Long after Amazon became the giant of e-commerce, it pumped revenue gains back into product development and operations.

Write to Laura Stevens at laura.stevens@wsj.com

(END) Dow Jones Newswires

October 27, 2016 16:26 ET (20:26 GMT)

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