Net Stocks Rising, but priceline Getting Marked Down

A flat revenue outlook sends priceline.com tumbling.
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Other than some postearnings blues, the Internet sector was rallying along with the broader market early today.

TheStreet.com Internet Sector

index was up 26.18, or 3.6%, at 746 in early trading as the market was seeing little threat from a

speech by

Federal Reserve

Chairman

Alan Greenspan

last night.

Among the few Net stocks on the defensive was

priceline.com

(PCLN)

, down 4, or 5.9%, at 63 7/8 after its

report last night. Though its reported third-quarter loss of 8 cents a share bested expectations of a 10-cent loss, the company said fourth-quarter revenue would remain flat with the $152.2 million it reported for the third quarter.

"We don't want to trade off margins for revenue," Dan Schulman, president and COO, told

TSC

in an interview after the company's conference call, which outlined priceline's results for the quarter ended Sept. 30. Because the fourth quarter is softer for the leisure travel market that priceline.com addresses, the company doesn't want to sell lower-margin tickets in an effort to boost revenue.

Despite the flat revenue, Schulman said the company will still be able to grow gross margins from the 12.2% reported in the third quarter and boost gross profits from the $18.2 million reported. "We have a plan to grow gross profit each and every quarter and reduce losses each and every quarter," he says.

While the company didn't outline more details from its recent licensing deals with

Alliance Mortgage

,

Budget Rent a Car

and the

Priceline WebHouse Club

grocery service to be launched this weekend in New York City, more such deals will likely follow sometime this quarter. "We think it's a good growth opportunity," Schulman says.

-- Suzanne Galante

In other earnings-related moves,

eToys

(ETYS)

was down 6 1/8, or 8.7%, at 64 1/2 after it was downgraded following its fiscal second-quarter report late yesterday.

Dain Rauscher Wessels

lowered rating on the stock to neutral from buy-aggressive. Dain Rauscher analyst Mitchell Bartlett increased loss estimates for eToys' fiscal third quarter to 51 cents from 38 cents due to higher marketing costs, saying the company was "hearing the footsteps of tremendous marketing spending from all competitors." He also noted that valuation of eToys was "at the premium end of comparable e-commerce companies."

In addition,

Reuters

reported that eToys said that

Goldman Sachs

, lead underwriter for its initial public offering, would release lockup restrictions on 10% of eToys shares, making up to 9.5 million shares available for sale on Nov. 2.

Reuters

indicated that release of the shares excludes those held by directors, officers and employees subject to lockup. The remaining shares subject to the lockup will be free Nov. 16.

TheStreet.com

noted the large number of shares that would be freed up by eToys in an

article last week.

eToys had solid numbers for the second quarter, reporting revenue of $13.3 million, much stronger than the Dain Rauscher estimate of $10.5 million. The company reported a loss of $32.1 million, or 27 cents a diluted share, compared with the 28-cent loss estimate from

First Call/Thomson Financial

.

Go2Net

(GNET)

was one of the leading point gainers among Net stocks, up 7 1/4, or 12.2%, at 66 5/16. The company reported earnings of 12 cents a share yesterday that doubled Street estimates. The stock was also getting a boost on news that it had reached a three-year agreement with

Net2Phone

(NTOP)

. Go2Net will integrate Net2Phone's PC-to-phone technology and other communications services throughout the Go2Net Network. Net2Phone was up 4 1/4, or 8%, at 56 3/4.

Also,

InfoSpace.com

(INSP) - Get Report

was up 7 1/4, or 14.5%, at 57 1/4 after it reported a profit of 6 cents a share, besting estimates of a 2-cent gain. Revenue of $10.1 million compared with $2.5 million in the year-ago period.

U.S. Bancorp Piper Jaffray

upped its rating on the stock to strong buy from buy following the report. And

Infoseek

(SEEK)

was up 3 1/16, or 10.6%, at 31 15/16, after it reported a 34-cent loss for its fiscal fourth quarter vs. the 42-cent loss estimate.

In nonearnings news,

America Online

(AOL)

was up 4, or 3.2%, at 130 1/2 after it set a 2-for-1 stock split late yesterday. AOL said that more than 2 million individual investors will get one share for every share they own on Nov. 8, with the remaining shares available beginning Nov. 22. After the split's effective date, the company will have 2.2 billion outstanding shares.

TSC

tipped off the possibility of a split on Wednesday.

Finally among Net bellwethers,

Yahoo!

(YHOO)

was up 3, or 1.7%, at 178.

The Wall Street Journal

reported that Yahoo! had rolled out an ad campaign marketing itself as an online shopping source.