Online retailer Amazon has revealed a steeper-than-expected drop in profits after the cost of expanding its operations offset a jump in sales.

Net income of US$201m (£122m) was down by a third on a year ago, despite a 38% jump in revenues to US$9.86bn (£6bn).

The company said its strong sales growth meant it needed more warehouses and upgraded technology, which has cut into earnings. It is also facing stronger competition from the likes of Asda owner Walmart Stores.

Shares in the Seattle-based company dropped 6% when the results were reported after Wall Street’s close on Tuesday. They later recovered to stand nearly 2% lower.

Amazon has been boosted by the success of its Kindle e-book reader, which was launched in the UK in 2009 and has become Amazon’s fastest-selling and best-selling item. It recently launched a thinner version that works with Wi-Fi.

Other best-sellers in the UK during the quarter included Jamie Oliver’s 30 Minute Meals book and the Kindle version of Stieg Larsson’s The Girl with the Dragon Tattoo.