To the chagrin of dot-com doomsayers, a handful of Internet stocks are on track to finish 2001 with big gains.


is up 324%, while travel site


(EXPE) - Get Report

is up about 300% and


is up 127%.


(EBAY) - Get Report

has risen 110%,


has gained 96%, and mortgage lender



has tacked on 56%.

What these stocks have in common is consumer relevance -- never before has it been so easy to purchase a mortgage or buy airline tickets. But more importantly, each of them, with the notable exception of, is making money.

"The success of Internet companies lies not only in selling people what they want, which a lot of e-businesses do," said John Underwood, a research analyst at Legg Mason, "but also in selling it to them profitably."


The extent to which the Internet itself adds value is the key factor in determining their viability, analysts say. "Selling travel is more efficient online than it is offline," Underwood said. "Consumers feel they have more alternatives in searching for airfares themselves than they do when relying on a travel agent."

Other experts agree: "With regard to travel, the online channel did something the offline channel never did," said Jake Fuller, an analyst at Thomas Weisel Partners, "it made pricing clear to the consumer."

In the third quarter, priceline reported pro forma earnings of 3 cents a share, on revenue of $302 million. But with charges, it had a loss of two cents. The company is forecast to break even in the fourth quarter.

Among's competitive advantages are low costs -- it doesn't need a warehouse to peddle its services. "Many companies that sell online have to compete with bricks-and-mortar warehouses," said Underwood. In his view, the ones that don't have to deal with stockrooms, such as

and eBay, are better off.

So Young

The biggest hurdle for priceline is its ability to grow, said Fuller. The company, with its demand-based business model, "faces competition from more full service travel providers," he said. Perhaps to address that issue, announced a marketing deal on Monday, after the closing bell, with

AOL Time Warner



The terms of the deal were not disclosed, but priceline's travel products will be available and promoted throughout AOL's travel channel and travel-related sites across CompuServe, Netscape, and Mapquest. Wall Street applauded the deal. priceline rose 10% to $6.26, though AOL fell 2.4% to $32.75.

"This is a good deal for priceline, which is already strong in distribution," said Underwood. "But I don't think it will materially alter earnings or revenue numbers for next year." In the past, Priceline has been unwilling to plunk down cash for distribution deals, leading Underwood to believe it put up a reasonable amount of money this time.

Dear Pharmacist

In other news, online drug retailer


reaffirmed on Tuesday its fourth-quarter revenue forecast of $40 million to $41 million, based on record numbers of visitors and sales. The company said average sales for the last three weeks were more than 30% higher when compared to sales for the same three-week period in 2000. rose 32% to $1.78 on Tuesday, though the company still needs to show it will make money.

Online lenders such as



have also witnessed a burst of activity, with a steep drop in interest rates this year. Netbank reported earnings of seven cents per share in the third quarter.

Each of these stocks trades at high valuations. Using 2002 earnings, has a P/E of 48.2, has a P/E of 56.9, Expedia has a P/E of 55.8, Netbank has a P/E of 21.5, and eBay had a P/E of 89.1. But while these companies might be not cheap, they haven't been the dogs many pundits have portrayed them as -- at least not this year.

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