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Amazon in a Bind

Investors are wondering whether earnings can hold up under tough competition.

Harry Potter casts a mean spell, but even he may not be able to wow

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investors this quarter.

The limits of the teen wizard's strength will be on display Tuesday afternoon as the world's largest Internet retailer posts quarterly earnings.

Sales of


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latest Potter title,

Harry Potter and the Half-Blood Prince

, should help boost Amazon's revenue by 26% from a year ago to $1.86 billion, analysts expect. But his effect on the bottom line is expected to be less enthralling -- analysts surveyed by Thomson First Call see third-quarter profit dropping to 10 cents a share from 17 cents a year ago -- and that's part of why Amazon has receded a bit lately from Wall Street's view.

Amazon faces increasing competition for customers as the stream of new online users is starting to dwindle. Investors will be looking for signs of pressure on the company's profit margin, which has been in the spotlight as Amazon spends more on marketing and incentives such as free shipping, as well as rising fulfillment costs.

"While we expect Harry Potter book sales to contribute $44

million-$45 million to the top line, they are sold at a lower margin," said JP Morgan analyst Imran Khan, who rates Amazon as neutral, in a note to clients. "Additionally, we expect increased fuel prices may have an approximately $10 million negative impact on the quarter."

When certain costs are excluded, Amazon should make about 25 cents a share, compared with 17 cents a year earlier, said McAdams Wright Ragen analyst Dan Geiman in a note. Geiman, who has a buy rating on Amazon shares, estimates that 1.5 million preordered copies of the Harry Potter book shipped during the quarter.

Meanwhile, Amazon's growth is starting to slow down. A year ago, revenue at the Seattle-based company increased 31%. This year, analysts are forecasting a 24% increase. Next year they see an 18% gain, according to Thomson Financial.

Compare that to


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, which last week reported yet another a blowout quarter, pushing its stock to an all-time high. With the Mountain View, Calif., search engine emerging as an old-school Internet growth story, Amazon is getting less ink. Even so, Amazon shares are near a 52-week high, having jumped more than 30% in the last year. On Monday, Amazon added 59 cents to $46.54.

Other metrics point to increased competition. Amazon had 43 million unique visitors to its Web sites in September, up 25% from a year earlier, according to comScore Media Metrix. That growth lagged behind the 83% increase seen by retail giant


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, as well as


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46% jump and a 27% gain at

Best Buy

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"The offline competitors are getting better and better at their e-commerce strategy," Jim Friedland, an SG Cowen analyst who follows the Internet sector, said in an interview. The firm doesn't have official stock ratings.

Earlier this year,

Circuit City

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and Amazon ended an agreement that had allowed Amazon customers to pick up electronics that they purchased on the Web site at Circuit City stories.

Last month, declared what it called a price war against its larger rival, promising to sell books at 10% below Amazon's prices.

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says its prices are 25% cheaper than Amazon's on "best-selling" books.

"They have to continue to be aggressive on pricing," said Martin Pyykkonen in an interview. The Hoefer & Arnett analyst rates Amazon sell.

Amazon showed last quarter that, despite concerns about its margins, the company is capable of expanding sales while maintaining profitability. Amazon shares

surged 12% in a day after the online retailer posted strong second-quarter numbers.

Other Internet companies that are scheduled to report this week include

Monster Worldwide

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, owner of the Monster.Com Web sites, on Wednesday. Monster is expected to make 24 cents a share on sales of $247.8 million, according to Thomson Financial.

Analysts are expecting Overstock, whose results are due Friday, to show a loss of 51 cents a share on sales of $160.3 million.



, owner of LendingTree.Com and Ticketmaster, and its former travel unit


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are due to report next week.

IAC, whose results are scheduled for Nov. 1, is expected to make 26 cents a share on sales of $1.5 billion. Expedia is expected to have earnings of 31 cents and sales of $572 million. The company is scheduled to release earnings Nov. 3.