Tuesday's earnings report is good news / bad news for Amazon and its shareholders: The retailer is taking in more money than ever, but at lower profit margins than it did a year ago. Analysts expected Amazon's fourth-quarter revenue to grow faster, but even slightly better-than-expected profits don't offset that much.

The company also offered lower-than-expected revenue and profit guidance for the first quarter of 2012. Disappointed investors sent share prices down 10 percent in after-hours trading.

So what's happening to Amazon? And why are traders suddenly feeling skittish?

'It’s all about the long term.'

Amazon has strategically placed a very long bet on growth in revenue and sales at the expense of profits. The Kindle Fire is a perfect example. Amazon makes relatively little in revenue and virtually no profit on the sales of individual devices. Millions of Kindle Fires, however, become millions of tiny retail outlets for everything Amazon sells, from digital books and movies to decidedly analog clothing and hardware. The company trades profit today for revenue tomorrow — with even more revenue and even higher profits arriving in the years to come. That's the yardstick the company judges itself by.

"At Amazon we like things to work in five to seven years," as opposed to two or three, CEO Jeff Bezos told Wired's Steven Levy in October. "We’re willing to plant seeds, let them grow – and we’re very stubborn. We say we’re stubborn on vision and flexible on details."

Trouble is, Wall Street doesn't operate on Bezos time. It marks time quarter to quarter – if not minute to minute. The only means Wall Street has to evaluate Amazon (even by its own standards) is looking at metrics like revenue. If revenue isn't growing by leaps and bounds from year to year, then the whole five- to seven-year strategy begins to seem flawed.

But wait – Amazon's revenue in the quarter was $17.43 billion, an increase 34 percent over the same holiday quarter in 2010. What's the problem?

Basically, anything less than record-breaking revenue would have been a disaster. A big revenue boom was already factored into Amazon's share price. The only question was how big the boom would be. Compared to, say, Apple's absolutely gangbusters, Scrooge-money-bath performance in the same period, Amazon's boom was relatively muted.

Analysts' expectations were unusually bullish, based on reports from other companies and rumors and announcements about high sales of Amazon's Kindle. If you go by Amazon's own guidances, though, the company was in the sweet spot. In October, Amazon estimated that its quarterly revenue for the fourth quarter would be $16.45 billion and $18.65 billion; $17.43 billion is about as right-up-the-middle as you can get.

Likewise, its profit guidance last quarter was equally wide and (to use CFO Thomas Szkutak's phrase, "appropriately conservative"): from a loss of $200 million and to a gain of $250 million. The company actually beat this estimate, eking out a profit of $260 million. Szutak is even more conservative for next quarter, pointing to a soft global economy and estimating anywhere between a loss $200 million and a gain of $100 million.

On the conference call, Piper Jaffray analyst Gene Munster asked whether Amazon's strategy of continued investment resulting in significant long-term growth had run its course. "The big surprise in the numbers today is the sense of a diminishing return on that investment," Munster said. "Are you adjusting your investment or business strategy for the future?" he asked Szutak. "No," Szutak replied.

Amazon's product line

The fourth quarter of 2011 was the first to include sales of Amazon's new line of Kindle devices, introduced on Sept. 28. Of these, only the entry-level Kindle (sometimes called the Kindle 4) was available right away; both the Kindle Touch and Kindle Fire tablet didn't ship until mid-November, roughly halfway through the quarter.

As Forrester's Sarah Rotman Epps noted when the new Kindles were launched, that shortened window lowered the number of units Amazon was able to ship (and the total amount of content it was able to sell) within the quarter.

Another participant on the conference call asked Szutak whether Amazon indeed had any plans to create a subscription service for digital video separate from its current library of streaming titles for Amazon Prime members. Here, Szutak was coy, saying only that the company liked what it was seeing with the Amazon Prime subscription service, that the company was investing further in digital content, that it would have to evaluate multiple metrics to determine the strength of such a system, and finally that it was still too early to make a pronouncement on the matter. So it definitely seems to be on the table, if not already a done deal that's just not ready to be trumpeted publicly.

One potential surprise: Amazon's sales of printed books were up by more than 10 percent from 4Q10 to 4Q11. That may just be the retailer gobbling up Borders' dessiccated corpse, but still: Increased emphasis on e-books doesn't seem to have hurt Amazon's abilty to sell paperbacks and hardcovers by the truckload.

Two visions of the digital future

There's one school of thought that says that all of Amazon's problems will be solved by its shift to digital media – that it's the expense of storing and shipping all of those goods, often in two days or fewer, across the country that is eating into the company's profits. That, at least, is what Oppenheimer & Co analyst Jason Helfstein told Bloomberg's Danielle Kucera.

There's an element of truth to this, but ultimately I don't see Amazon's shift to digital as a way to reduce expenses. Ultimately, it's a retail innovation: Reduce the amount of friction between the customer and her purchase – the single click of the virtual cart, not the receipt of the physical box – and you will increase the total number (and profitability) of every sale.

Every screen that you can turn into a place to both search for and enjoy content is a screen that you can transform into a buying machine – and Amazon is otherwise totally agnostic about whether it's a digital or physical product that you buy.

That's the bet Amazon is making for its future. I don't think it will take five to seven years to see if it will pay off. Even if it isn't satisfying the dreams of Wall Street, if you look closely, it's paying off already.