Online retailers look set to endure their toughest Christmas for years after Amazon.com, the largest company in the sector, sharply lowered its fourth-quarter revenue targets on expectations of a poor festive season.

Shares in the company plunged 14 per cent in after-hours trading, as Amazon lowered its revenue target for the final three months of the year to between $6 billion (£3.67 billion) and $7 billion, against the $7.2 billion it had previously forecast.

Last year, the company, which sells goods from books to barbeques and Barbie dolls, made more than 40 per cent of its profits over Christmas.

The stock has now lost nearly 60 per cent of its value over the past year.

Brian McBride, Amazon's UK chief executive, said: "Consumers are becoming more value conscious. They still want branded premium product, but they are looking for a deal."

Amazon's update cast more gloom over the online sector, which few now believe will remain immune to a global consumer slowdown.

Last week, eBay, the largest online auction house, gave warning that it expects its first quarterly sales decline and cut its annual earnings forecast.

Meanwhile, Sequoia, the venture capital house behind companies including Google, recently told those technology start-ups it has invested in to slash their costs on anticipation of a prolonged downturn.

Amazon said it now anticipates full-year revenue of $18.46 billion to $19.46 billion, below the $19.52 billion that analysts polled by Thomson Reuters were expecting. In July, Amazon had predicted 2008 sales of $19.35 billion to $20.10 billion.

Jeffrey Lindsay, a Sanford Bernstein analyst, said: "Guidance that wide might set the stage for the reset of internet valuations and a rethink going into 2009."

He added: "This is further confirmation that the economic downturn is much more pervasive than was earlier thought.

"Online retailers were thought to be immune to it but this is an indication that that is far from true. They are definitely signalling much worse returns in the fourth quarter."

Tom Szkutak, Amazon's chief financial officer, said Amazon was being "appropriately conservative and prudent" given its "limited visibility."

The downbeat forecast knocked the gloss of a solid set of results for the three months to September. Amazon said that profits rose sharply from $80 millionin the same period last year to $118 million.

Mr McBride insisted that Amazon would still be among the winners this Christmas and that anticipated sales growth of 15 per cent would be far better than others on the high street.

"Our guidance of 15 per cent for the fourth quarter will look pretty good result compared like-for-like declines elsewhere," he said. "We are certainly in a more frugal environment but we run a pretty tight ship."

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