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Amazon has announced record profits as free cash flow "more than doubles" during 2007 with strong sales across the board.

The internet retailer said its full-year free cash flow surpassed $1 billion (£0.5 billion) for the first time, growing by 143 per cent to $1.18 billion (£0.59 billion), up from $0.49 billion (£0.245 billion) 12 months earlier.

Many retailers have experienced strong growth in online sales over the festive season, reflecting a change in consumer behavior.

"This quarter showed accelerated sales growth and record operating profits," said Jeff Bezos, founder and chief executive of Amazon.com.

"In our view, these unusual financial results are driven by one thing: continuously improving the customer experience."

Despite the record earnings, however, operating income forecasts were below market expectations, causing shares to take an 11 per cent dip in after-hours trading yesterday after closing up 0.35 per cent to $74.21 (£37.10).

While sales hiked up 42 per cent during the online retailing giant's fourth quarter, operating margins were just 4.8 per cent. Analysts had forecast margins above five per cent.

"If a high single-digit operating margin is the right thing to do to drive free cash flow, that is what we will do," remarked Amazon.com's chief financial officer Tom Szkutak in a conference call with analysts,

Mr Szkutak had earlier promised "double-digit" margins.

With concerns about a slowing economy, the relatively small margin is a major concern to investors who would like to see more profitability.

The company has shaved off roughly 23 per cent of its share value since the turn of the year.