After offering consumers incredible Christmas shopping deals, Amazon.com did indeed have its best holiday season ever in sales, according to financial results released Thursday.

But the world's largest Internet retailer also saw fourth-quarter profit drop 51 percent because of higher taxes and significant increases in operating expenses such as technology, marketing and delivering orders.

Profit for the quarter ended Dec. 31 fell to $98 million, or 23 cents a share. A year ago, net income was $199 million, or 47 cents a share. Sales increased 34 percent to $3.99 billion from $2.98 billion.

Analysts surveyed by Bloomberg estimated fourth-quarter net income of 21 cents on average with sales of $3.76 billion.

It was the eighth consecutive quarter the company's profits had declined from the previous year as Chief Executive Officer Jeff Bezos increased spending to develop products such as the "Unbox" service.

The service, which has received mixed reviews, competes with Blockbuster Inc., the largest U.S. video rental chain, and Netflix Inc., an online rental service.

Seattle-based Amazon.com had boasted the day after Christmas that holiday sales were the finest ever in the company's history, thanks to sales of jewelry and video games.

Bezos said Thursday that Amazon Prime members, who benefit from a subscription that gives them unlimited, two-day free shipping, increased their buying during the holidays.

Amazon cut prices to sell more Xbox 360 video game systems, Barbie dolls and digital cameras in November and December. The company last year began selling toys, baby supplies, auto parts and groceries.

The company said the most recent results were hurt by $91 million in income tax expenses in the quarter, compared with a tax benefit of $38 million in the comparable 2005 period.

For the year, Amazon.com said it earned $190 million, a 47 percent drop from $359 million in 2005. Revenue was up 26 percent to $10.71 billion, compared with $8.49 billion in the previous year.

Also on Thursday, the company began taking advance orders for "Harry Potter and the Deathly Hallows," the seventh and final installment of the "Harry Potter" series due out July 21.

Company officials said orders were skyrocketing, but they declined to disclose precise figures.

"The anticipation for this book has been like none other in our history," said Greg Greeley, vice president of books at Amazon.com.

Amazon received more than 1.5 million advance orders of the sixth book, "Harry Potter and the Half-Blood Prince," which was released in July 2005 and was Amazon's largest, most successful product release in the company's history.

Shares in Amazon.com closed up $1.03, or 2.7 percent, at $38.70 Thursday on the Nasdaq stock market.

The results were released after the market closed. In after-hours trading, shares dropped slightly.