Oct. 22 (Bloomberg) -- Amazon.com Inc., the world's largest Internet retailer, forecast 2008 sales that may be $1 billion less than analysts estimated, sending the shares down 14 percent in late Nasdaq trading.

Amazon.com's reduced forecast and EBay Inc.'s projection last week for its first quarterly sales decline suggest online retailers won't be spared the effects of the worst financial crisis since the Great Depression heading into the holiday fourth quarter, which last year accounted for 43 percent of Amazon.com's annual profit.

``EBay gave a terrible forecast a week or two ago and they are in the same space as Amazon,'' Jeffrey Matthews, a general partner at hedge fund Ram Partners LP in Greenwich, Connecticut, said today in an interview with Bloomberg Television. ``There was a pretty abrupt fall-off in the consumer side, and that is what we are seeing.''

Annual sales will be $18.46 billion to $19.46 billion, Seattle-based Amazon.com said today in a statement, compared with the company's July forecast of as much as $20.10 billion. Operating income will be no more than $876 million, excluding about $300 million in costs, compared with a previous high of $920 million.

``We expect the holidays are going to be lackluster; that shouldn't be a surprise,'' Scott Tilghman, an analyst at Soleil Securities Corp. in Baltimore, said today in a telephone interview. ``They're still beating out the bricks-and-mortar retailers.'' He recommends buying Amazon.com shares and doesn't own any.

Slower Growth

Growth slowed toward the end of the third quarter ``coinciding'' with disruptions in the financial markets, Chief Financial Officer Tom Szkutak said today during a conference call with investors and analysts. Revenue won't benefit as much from foreign-exchange rates as predicted in earlier forecasts, the company said.

The average estimate of 21 analysts surveyed by Bloomberg is for annual sales of $19.5 billion.

Amazon.com declined $7.09 to $42.90 after the close of regular Nasdaq Stock Market composite trading. Earlier, the shares fell 24 cents to $49.99. The stock has lost 46 percent of its value through today after more than doubling in 2007.

Fourth-quarter sales may rise to $6 billion to $7 billion, Amazon.com said. Analysts, on average, estimate $7.07 billion. Operating income may fall to as little as $145 million or rise to as much as $305 million.

`Faring Well'

Net income in the third quarter increased 48 percent to $118 million, or 27 cents a share, from $80 million, or 19 cents, a year earlier. Revenue advanced 31 percent to $4.26 billion, Amazon.com said, less than analysts estimated and the smallest sales gain in two years.

Analysts estimated profit of 25 cents a share, the average of 17 projections in a Bloomberg survey. Twenty analysts estimated average sales of $4.28 billion.

EBay, the world's biggest Internet auctioneer, last week projected its first quarterly sales decline and reduced its annual earnings forecast as growth slows at the company's namesake Web sites. The value of goods sold on EBay's sites fell 1 percent in the third quarter, the first drop in the company's history.

``We are faring very well'' given the macroeconomic environment, Szkutak said during a conference call with reporters. ``In this macro-environment, our model we think fits well.''

Books, DVDs

Third-quarter sales of books, DVDs and other media increased 19 percent to $2.49 billion, the retailer said. Sales of electronics, jewelry, apparel and other general merchandise climbed 52 percent to $1.64 billion. The category accounted for 38 percent of total sales, up from 33 percent a year earlier.

Amazon.com sells products in more than three dozen categories, ranging from power tools to musical instruments. Last month it started a store selling more than 300,000 motorcycle and ATV parts and accessories.

The retailer has expanded digital sales, introducing the Kindle electronic-reading device last year to encourage book, magazine and newspaper downloads. The service offers 185,000 titles. Kindle sales have ``significantly'' exceeded the company's plans and a new model won't be released before 2009, Szkutak said.

Sales in the U.S. and Canada rose 29 percent to $2.3 billion. Revenue at Amazon.com's U.K., German, Japanese, French and Chinese Web sites gained 33 percent to $1.96 billion.

To contact the reporter on this story: Heather Burke in New York at hburke2@bloomberg.net.

Last Updated: October 22, 2008 19:15 EDT