NEW YORK ( TheStreet) -- The three big Internet retail players posted mix fourth-quarter results.

Amazon

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Amazon's ( AMZN) sales and margins are in focus, as both measures fell short of expectations in the fourth quarter, triggering a massive sell-off in the stock.

This marked the third consecutive quarter that Amazon's results were not on par with its tradition of outperformance.

While some brokerage firms downgraded the stock on the news, for the most part, analysts sentiment remains bullish, urging investors to pick up shares on the downturn.

During the quarter the e-commerce giant earned $416 million, or 91 cents a share, on revenue of $12.95 billion. Analysts were looking for a profit of 88 cents on revenue of $13.01 billion.

Margins came in at 3.7%, below Wall Street's forecast of 4.2%, as Amazon amped up its investment in its infrastructure.

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Amazon has been rapidly expanding its fulfillment centers, opened 13 new locations in 2010 with plans to roll out more distribution centers this year.

While analysts for the most part still foresee strong growth, shareholders will need to be patient. Amazon said it still expects double-digit margins in the long term, but margins in the first half of the year will most likely be lackluster.

Amazon predicts operating profit will be in the range of $260 million to $385 million in the first quarter, with sales as low as $9.1 billion. In comparison, Wall Street is looking for operating profit of $474 million on revenue of $9.36 billion.

Once again, Amazon did not disclose sales on its popular Kindle e-reader. But CEO and Founder Jeff Bezos said the device helped push sales above $10 billion for the first quarter ever. "Kindle books have now overtaken paperback books as the most popular format on Amazon.com," Bezos said in a statement. "Last July we announced that Kindle books had passed hardcovers and predicted that Kindle would surpass paperbacks in the second quarter of this year, so this milestone has come even sooner than we expected -- and it's on top of continued growth in paperback sales."

During the quarter Amazon purchased Quidsi, which owns and operates Diapers.com and Soap.com. Last week the company also announced it purchased LoveFilms, which is fondly known as the " Netflix ( NFLX) of the U.K."

Separately, Bezos shed some of his stake in the company, now owning 19.5% as of Dec. 31 from 21.2%.

Netflix

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Netflix ( NFLX) surprised investors as its subscriber base topped 20 million, and both fourth-quarter profit and sales easily surpassed expectations.

During the quarter, the movie rental company earned $47.1 million, or 87 cents on revenue of $596 million, compared with Wall Street's estimates of 71 cents a share on revenue of $598 million. This is up substantially from its profit of $30.9 million, or 56 cents a share, on revenue of $445 million, in the fourth quarter of 2009.

The company saw its subscriber base top 20 million for the first time, as Netflix added 3.1 million new users during the quarter. Analysts predicted new users would grow to 19.5 million for the year. This puts a dent in some analysts' arguments that Netflix's pace of subscriber additions is unsustainable.

Operating margins were also better than expected at 13%. Wall Street's biggest fear has been that Netflix's growing content costs for its streaming library will erode the bottom line. But it appears content costs were offset by a reduction in the cost of mailing DVDs, as more users chose to stream content rather than order physical discs.

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Netflix refrained from providing full-year guidance, other than saying it expects "domestic subscriber net additions to continue to grow in 2011." The company defended this move by saying its business "is so dynamic."

But management did say that it expects to end the first quarter with 21.9 million to 22.8 million and revenue to come in between $684 million and $704 million.

Netflix has been attempting to wean users off physical DVDs as it openly moves from a DVD-by-mail company to a streaming company.

During the quarter, Netflix began offering a streaming-only plan for $7.99 per month and raised prices on its DVD rental plans. And last week Netflix announced on its blog that it is removing its "Add to Queue" button from streaming devices.

In the fall the company made its first international foray into Canada, and Netflix unveiled plans to enter its second international market during the second half of this year. While the company did not disclose which market it plans to enter, it expects an operating loss of about $50 million on international operations during the second half.

Shares of Netflix rose 280% in 2010, and while the jump has thus far been warranted, Wedbush analyst Michael Pachter says shares are "grossly overvalued." "We believe that the company's current share price reflects a belief that its earnings will grow dramatically in 2011, and we remain convinced that its content costs will rise dramatically as well, keeping its earnings potential in check, and resulting in far more modest growth than its share price implies," he wrote in a note.

Pachter also notes growing competition from new services from Hulu, Amazon, Google ( GOOG) and Apple ( AAPL).

eBay

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eBay's biggest story continues to be its PayPal business.

The payments business pushed eBay's fourth-quarter earnings ahead of expectations. During the quarter the e-commerce company earned $559 million, or 42 cents a share, compared with $1.36 billion, or 1.02 a share in the year-ago period. Excluding costs related to the sale of its Skype business, eBay actually earned 52 cents a share. Revenue climbed 5% to $2.5 billion. Analysts were calling for a profit of 47 cents a share on revenue of $2.48 billion.

This marks the 18th consecutive quarter eBay surpassed EPS estimates.

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At PayPal total revenue and total payments volume exceeded expectations, with 94.4 million active registered accounts, adding approximately one million active accounts per month. PayPal's net total payment volume was $26.9 billion.

But there is one looming risk for PayPal as it faces potential regulatory issues from the Durbin Amendment, a piece of legislation that if passed, would shift payment of so-called "interchange fees" from merchants to financial institutions. This could put pressure on PayPal to lower its merchant fees.

But eBay's CEO Bob Swan said during the conference call the legislation is not expected to have a material impact on the PayPal business.

eBay has also been working to revamp its marketplace site to woo buyers and sellers with a redesigned homepage and cutting upfront fees. "Technology investments to improve the core marketplace business are beginning to see some return, and further enhancements during 2011 should improve growth rates," Susquehanna analyst Marianne Wolk wrote in a note.

eBay is planning major upgrades to its search experience and user interface in several categories, including auto products, consumer electronics and home goods. This upgrade is expected to yield better results that mirror the upticks it has seen in its fashion category.

The mobile business has also become an increasingly important piece of the pie. Total gross mobile gross merchandise volume for the full year reached nearly $2 billion.

Looking ahead, eBay expects first-quarter earnings in the range of 44 cents to 46 cents a share and full-year profit between $1.90 and $1.95 a share. Wall Street is calling for a profit of 45 cents and $1.85 a share, respectively.

Given fourth-quarter results, which Internet stock is the best bet? Take our poll below to see what TheStreet thinks....

Which Internet stock is the best bet?

Amazon
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