Your profits have been halved during the telltale holiday quarter. You find yourself spending a lot more to ship your orders than you are charging your customers on shipping. If this sounds like a recipe for e-commerce disaster, you just don't know the whole story behind the wild success at (NASDAQ:AMZN).

The company posted spectacular results for its December quarter. Yes, all of my opening comments are true, yet I defy anyone to characterize the e-tailing giant's showing as a failure. Earnings fell to $0.23 a share for the quarter, after a $0.47-per-share showing during the 2005 holiday quarter. However, Wall Street was only looking for profits to clock in at $0.21 a share -- and the disparity is due to a tax benefit that the company scored a year earlier. If you look at operating profits, they actually shot up 20% for the quarter.

Analysts felt that the company would grow net sales by 27%. Instead, Amazon grew its top line 34% higher to land a few Segway scooters shy of $4 billion.

Amazon has humbled me. Given the company's initial holiday sales data, I felt that the bellwether would ring up slower sales growth than the 22% boost it had clocked a year earlier. I was wrong.

Even this past weekend, when I applauded Amazon for its accelerated top sales growth through 2006, I prefaced the praise by pointing out that the trend may end with Thursday's report. Again, I was wrong.

Year-Over-Year Sales Growth

Q1 2006


Q2 2006


Q3 2006


Q4 2006


For 2007, Amazon is looking to grow sales 21% to 28% higher. In other words, the acceleration is likely to give up the ghost this year, but that's OK. Smaller public online retailers like RedEnvelope (NASDAQ:REDE) and (NASDAQ:OSTK) aren't growing this quickly.

Is Amazon perfect? No way. Gross margins continue to shrink. The company spent $317 million in shipping out merchandise where customers only footed $192 million in shipping costs. Some may be skeptical of Amazon's promotion at its new shoe and handbag site -- where shoppers are getting a $5 discount on top of free overnight shipping -- yet all of its established rivals offer free delivery. Amazon has to stand out, and this is just a promo for February.

However, these shortcomings are also moves that will keep customers loyal and competitors nervous. You may never realize chunky margins winning the battle at both ends, but it's hard to argue with the successful warrior.

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Longtime Fool contributor Rick Munarriz has been shopping online for about as long as has been in business, but he rarely has all the answers. He does not own shares in any of the companies in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.