Price cuts on Nissan's Altima last year led to a surge in sales -- at the expense of Nissan's profits. Photo credit: Nissan.

Wall Street was surprised last week when Toyota (TM 1.90%) blew away estimates with an eye-popping $5.1 billion profit for the quarter ended Dec. 31. Toyota has executed well, but the big story was the advantage it received from the devaluation of the Japanese yen.

That's why analysts were surprised by the results that Nissan (NSANY 2.03%) reported on Monday, too -- but in a different way.

Despite having the same currency advantage as its rivals, Nissan reported net income of just 84.3 billion yen, or about $825 million, for the quarter ended Dec. 31. 

That was enough to beat estimates, but it was just 3.3% of revenue -- the lowest margin of any Japanese automaker last quarter. 

What's the deal? Is Nissan in trouble?

Great deals for U.S. buyers hurt profits at home
Three months ago, Nissan CEO Carlos Ghosn made dozens of changes in the company's executive ranks after the company cut its full-year profit forecast by 15%. At the time, Nissan blamed a few different factors for the cut, including slower growth in emerging markets -- and high incentives in the U.S.

That last one is a big deal.

Nissan's sales in the U.S. hit an all-time in 2013. But those sales came at a price: high incentives. Nissan's U.S. incentives in December averaged $2,810 per vehicle, according to TrueCar. That's higher than any automaker aside from the Detroit Three.

Ford (F 4.16%) and General Motors (GM 2.25%) and Chrysler are traditionally the three biggest spenders on incentives in the U.S. market. That's largely due to their fierce competition in the full-sized pickup market, where heavy incentives are just part of doing business. Nissan is a tiny player in that market; its big spending on incentives is somewhat extraordinary for a Japanese automaker in the U.S.)

Those incentives had a big impact on Nissan's results: Pre-tax earnings in North America were just 3.4 billion yen during the quarter, or about $33.2 million, down from 26.5 billion yen ($259 million) a year earlier. 

But like I said, Nissan's sales in the huge and profitable U.S. market have been up. Is that a good trade-off?

Can Nissan keep gaining market share at the expense of profits?
It isn't just incentives that have hurt Nissan's profits here. Nissan's U.S. sales really took off last May, after the company aggressively cut its sticker prices on seven key models, including the Altima sedan, its top seller.

The price cut worked, in the sense that the Altima gained market share -- mostly at the expense of Toyota's Camry -- in 2013. 

At the time, those price cuts seemed to make sense for Nissan. The Japanese government's moves to devalue the yen were meant to give Japanese companies an advantage in export markets. 

Two years ago, $1 earned here was worth 76 yen in Japan. Now it's worth about 102 yen. That's why Toyota was able to report a huge jump in profits last week.

Unlike Toyota, which hasn't made any major price moves in the U.S. recently, Nissan seems to have spent its price advantage to gain U.S. market share. But Toyota's key models are all fresh -- the Corolla was all-new last fall, the Camry a year earlier. 

Nissan, meanwhile, is in a product lull. It won't have any new models for the U.S. this year, aside from the Murano SUV.

That means Nissan may be stuck with its low-price strategy if it wants to hold on to its market share gains. That, in turn, will keep profits subdued for a while. Will CEO Carlos Ghosn be willing to make that trade-off? Stay tuned.