(AMZN) - Get Report

customers aren't so loyal after all.

Amazon shares fell 4% Tuesday morning after a

Prudential Securities

report asserted the company is losing customers almost as fast as it is adding them. The claim contrasts with company press releases that highlight the millions of new customers Amazon acquires each quarter, and strikes at the heart of Amazon's claim that it deserves a premium valuation because of its loyal customer base.

"We have become increasingly concerned that Amazon's customer base is turning out to be far less loyal than once assumed, and as a result may not be so 'valuable' after all," analyst Mark Rowen wrote after the close of trading Monday. Rowen also reiterated his sell rating, a rarity on Wall Street, which he

slapped on the company in February. (Prudential has had a banking relationship with Amazon.)

According to the report, the company added about 3 million new customers in the recently ended first quarter, in which Amazon

beat Wall Street earnings estimates. But the company, based in Seattle, lost about 2.3 million in the same period, Rowen estimates.

"Each quarter, the company trumpets how many millions purchased for the first time, along with the number of cumulative customers served from the inception, which has grown to more than 32 million," Rowen wrote. "However, what the management understandably leaves out of its press releases is the disturbing trend of inactive customers." He defines inactive customers as those who haven't made a purchase in the last year.

For Amazon, like most Internet companies, the days of favoring rapid revenue growth at the expense of profits are over. Indeed, the company has made strides in cutting costs, raising prices and boosting profit margins, most notably in the first quarter of 2001. One result, however, is that some customers attracted to bargains have stopped shopping at Amazon.

"We believe there is a clear negative correlation between Amazon's improving operating margins and its loss of active customers," Rowen says.

Amazon's aim should be to continue to boost profit per customer, he says, an area in which the company has lately made progress: The 12 months that ended March 31, Amazon earned an incremental profit of $15.73 per customer, compared with just $3.97 in the same period a year ago. He defines incremental profit as gross profit, less fulfillment costs (such as shipping and warehousing), divided by the active customer base. It doesn't take into account other costs, such as administrative costs or product development, on the assumption that one incremental customer would have little effect on these costs.

Amazon shares were down in early trading 54 cents at $16.38.