Amazon.com, the online retailer that was close to being written off as a hopeless cause by Wall Street as little as 18 months ago, yesterday reported its first ever profit.

The result will be viewed as an important landmark for the internet sector which has struggled to achieve any kind of credibility among investors since the dot.com boom turned into a catastrophic bust.

Amazon beat the expectations of analysts with a net profit of $5m (£3.5m) for the fourth quarter of 2001 from a loss of $545m in the same period in the previous year. Revenues during the quarter broke the $1bn mark for the first time and Amazon shares were trading 28% higher in early trade.

Mary Meeker, an internet analyst at Morgan Stanley, made the grudging admission that Amazon had achieved "important milestones" although, she added, the company had not made it easy. Amazon has lost almost $3bn since going public in 1997.

Diego Piacentini, Amazon's senior vice-president for worldwide retail and marketing, said the business was beginning to reap the benefits of scale.

"What we have shown is that the model works," he said. "Our fixed costs are under control and we are moving into a new pattern of revenues."

Amazon has taken an aggressive stance on costs, closing two warehouses and cutting marketing spend and head office expense.