Scouring Amazon for the Shipping News

In the third quarter, shipping cost the company $83 million, but it took in only $73 million in shipping revenue. That's up from 2001's third quarter, when shipping cost the company $76 million and it brought in $74 million in shipping revenue.

Those losses could balloon in the fourth quarter, which typically provides the bulk of Amazon's sales. The quarter also will be the first complete one to reflect the costs of the $25 free-shipping threshold.

"The $25 threshold will go by the wayside," Fieler said. "It has to. It's too expensive."

Of course, the news isn't all bad for Amazon. Online sales grew by 24% during the season, according to a report by Goldman Sachs, Harris Interactive and Nielsen NetRatings. As one of the leading e-tailers, Amazon likely benefited from that surge in sales, analysts say.

"Overall, we're expecting a pretty decent quarter from Amazon," said Dan Geiman of McAdams Wright Ragen. McAdams Wright Ragen does not have any investment banking business with Amazon.

Wall Street analysts surveyed by Thomson Financial/First Call expect Amazon to post a pro forma profit of 14 cents per share on $1.39 billion in revenue for the fourth quarter. Last year, the company earned $5.1 million, or 1 cent, on a GAAP basis on $1.1 billion in revenue.

But the free-shipping issue could prove a thorny problem for the company. Raising the threshold for free shipping could well slow the company's sales growth. Despite the dot-com downturn, dozens of companies still compete online against Amazon. And many of them already offer either lower prices or less-restrictive free-shipping terms.

Buy.com, for instance, offers free shipping on many of its items without minimum purchase and promises book prices that are 10% lower than Amazon's. Although Amazon has carved out a reputation for itself as the leading e-tailer, it still has to be competitive on price or it could lose sales.

But keeping free shipping at a low threshold could affect the company's earnings potential. The less money it's able to get for shipping, the less it will be able to bring down to its bottom line.

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