Amazon.com Inc. (AMZN) on Thursday posted a quarterly profit below Wall Street forecasts and the Web's largest retailer vowed to continue free shipping incentives, then watched its shares fall sharply after hours.

"While free shipping is expensive for the company, it saves our customers tens of millions of dollars each quarter, and we plan to keep it in place indefinitely," Amazon Chief Executive Jeff Bezos (search) said in a prepared statement. Free shipping and price discounts fueled a 26 percent jump in sales at Amazon.

The company's forecasts for the third quarter were weaker than analysts expected.

"The outlook for the near term, in the September quarter, implies a fairly significant drop in operating margins," Mark Mahaney, an analyst with American Technology Research, told Reuters.

Seattle-based Amazon reported second-quarter net income of $76 million, or 18 cents per share. That compared with a year-earlier net loss of $43 million, or 11 cents per share, which included charges for stock-based compensation, amortization and other items.

The latest profit figure was a penny short of Wall Street analysts' consensus forecast for a profit of 19 cents per share, according to Reuters Estimates.

Amazon, which began life as a bookseller but now offers a vast array of consumer goods online with various merchant partners, posted revenue of $1.39 billion, within its target range of $1.34 billion to $1.44 billion.

International sales grew 50 percent to $595 million in the quarter from a year ago, or 38 percent excluding beneficial swings in foreign exchange rates.

But analysts were disappointed by Amazon's sales of books and music in North America, its traditional market, which rose just 9 percent from a year ago.

"One might argue that incremental gains are coming at a slower rate and maybe higher costs, given the discounting," analyst David Garrity of Caris & Co. told Reuters.

Major Internet stocks fell broadly early Thursday after online auction leader eBay Inc. (EBAY) gave a disappointing forecast, but analysts noted Amazon's price-to-earnings ratio was much lower than eBay's or that of Yahoo Inc. (YHOO).

"I don't think you have a major correction in Amazon shares ahead," Mahaney said.

Amazon projected third-quarter revenues would rise to between $1.425 billion and $1.525 billion from $1.134 billion in the same period a year ago. Analysts were forecasting $1.45 billion in revenues, according to Reuters Estimates.

Before the announcements, Amazon shares closed at $45.82 in Nasdaq trade, up 2.4 percent. In after-hours dealings, the stock slumped to $43.74, or 4.6 percent.