Wednesday

Adam Lashinsky on the State of the Internet

Dan Colarusso on Internet Growth Projections

Katherine Hobson on E-tailers' Push for Profitability

Catherine Valenti on Ailing Internet Funds

Jamie Heller on Using the Net to Track Net Stocks

Thursday

Tracy Byrnes on the Frenzy Next Time

George Mannes on Self-Hating Dot-Coms

K.C. Swanson on Old Economy Winners

David Gaffen on Measuring the Internet Economy

Friday

Ian McDonald on 'Butterfly' Companies

Justin Lahart on Real Net Valuations

Joe Bousquin on Building the Perfect Net Company

A Dan Gross Opinion Piece: Were the Old Guys Right?

TSC Roundtable on Predicting Six-Month Winners

Roland Jones on The Last Days of Daytrading

Eric Gillin on Working for a Dot-Com

FTD.com

(EFTD)

, the online flower retailer, last week became a rarity among Internet stocks: It turned a profit.

Isn't this what every little e-tailer dreams of doing when it grows up? Isn't this what the Street has demanded since the spring's

Nasdaq Composite Index

washout? Isn't this what being a real company is all about?

Yes, yes and yes, but while FTD.com's stock has added more than a buck since the announcement, it still hovers around $3.25, some 63% below its high of $8.88. Meantime, other companies, from

Amazon.com

(AMZN) - Get Report

to

Alloy Online

(ALOY)

, are seeing their stock prices tread water or even decline as they get closer to that first penny of earnings.

This sounds counterintuitive. In the early days of the Internet, the mantra was to get as much money as possible from the capital markets and then use it to get as big as possible as fast as possible. Profits be damned! After April's Nasdaq collapse, however, it became clear that capital markets were no longer as tolerant -- and investors have been screeching about the bottom line ever since.

Shouldn't a company that pleases them see its stock rise again? Dig a little, though, and it becomes clearer why there isn't necessary a pot of gold at the end of the path to profitability.

First, let's be clear about language: FTD.com has real, bottom-line earnings. But when many companies talk about breaking even, what they mean is breaking even on a cash flow basis -- in simplest terms, taking in more cash than they spend. This doesn't include noncash charges like good will. That at least makes it easier to put a value on a stock using discounted cash flow analysis. "Once someone becomes cash-flow positive there's a valuation pop for anyone," says Brian Oakes, chief investment officer at

Cendant

.

But in the real world, the E part of the P/E still comes from earnings-per-share -- and that, eventually, is what investors want.

Then there's the question of how long profitability will last. Alloy Online, the Gen. Y e-commerce site, has said it expects to show earnings in the fourth quarter. But Kathleen Heaney, an analyst with

BlueStone Capital Partners

says she doesn't have them making money in the first and second quarters.

"They may be able to hit it the one quarter, but will it happen the next quarter and the next quarter?" she says. Heaney gives Alloy her highest rating. (Her firm hasn't done underwriting for Alloy.)

True, not all companies make money all year long; some retailers with seasonal businesses, like gadget-seller

Brookstone

(BKST)

, don't. Let's stipulate that profitability in all four quarters of the year is a goal, though.

But assume that a company is consistently making money. Then what?

"Obviously, it's what people want to see, but it isn't enough," says Mark Rowen, an e-commerce analyst with

Prudential Securities

. "They have to have a big market opportunity, they have to be able to execute and they have to be able to grow the business quickly."

And there's the big rub: It's not enough to make money. You've also got to keep sales growing at the rapid rates that made investors grab e-tailing shares with both hands in the first place. That, however, becomes increasingly difficult as marketing costs are trimmed to get to profitability in the first place.

The single largest key factor that allowed FTD.com to hit profitability sooner rather than later was the 96% name recognition of FTD, which allowed the company to skip pricey marketing, says Mike Soenen, FTD.com's president and CEO.

eBay

(EBAY) - Get Report

, the other profitable e-tailer, didn't have to spend much on marketing, either; it gained recognition by word of mouth.

But other, less well-known e-tailers still have to spend significant money to keep their sales growing. Spending money = bad. Revenue growth = good. Nice little paradox, no? And without that rapid growth, valuations look absurd. eBay may be revolutionizing the way we buy and sell stuff -- but at 385 times trailing 12-month earnings, it had better be. FTD.com's price-to-sales ratio is better than that of

Wal-Mart

(WMT) - Get Report

.

Revenue growth has slowed at virtually every e-tailer, as they've cut marketing expenses and as their natural market has become more apparent. Not coincidentally, e-tailers' shares have declined too; in fact, it was the now-famous whispering about Amazon's slower revenue growth by

Morgan Stanley's

Mary Meeker and

Merrill Lynch's

Henry Blodget that set off the stock's summer swoon.

"Reality is setting in: It might be good, it might be profitable, but it might be a $50 million business," Oakes says. "How much will people pay for that? Probably not a heck of a lot."

What does this all mean for Amazon, by far the most controversial e-tailing stock around? After all, Amazon has certainly shown that it's more than a $50 million business. "Amazon is a little more difficult, because you're never talking about a clear path to profitability," says Heaney. Certainly some of the clouds around the stock would be lifted if the company proved it was actually capable of producing earnings.

But even then, the company would be subject to the same old profits-revenue tradeoff. "If they were profitable, the whole discussion would be a different one," says Jeff Matthews, of

RAM Partners

, who is short the stock. "The question is, if they were to be profitable, at what growth rate? Theoretically they could be profitable right now if they stopped growing and got rid of lawnmowers and auctions, but the Street wouldn't pay anything for that. Then they'd be a highly leveraged, modestly profitable company that might trade for 10 times earnings."

In other words, becoming profitable may not exactly be the best thing in the world for e-tailing stocks, since it will expose a lot of companies for what they are: retailers -- with retail-like sales growth and retail-like profit margins -- who happen to conduct business via the Internet. That also means retail-like multiples.

So much for the pot of gold.