Updated from 1:11 p.m. EDT

Ask Jeeves ( ASKJ) agreed to sell its enterprise software division Jeeves Solutions to Kanisa Inc. in a bid to focus on its Web search business, and the company raised its guidance for the second quarter and full year.

Kanisa will acquire the assets of Jeeves Solutions, including the JeevesOne technology and its roughly 40 corporate customer accounts. Kanisa will pay $4.25 million for the business, of which $3.5 million will be paid in cash when the deal closes. The rest will be paid by way of a one-year promissory note for $750,000.

Ask Jeeves expects to close the sale in July.

Additionally, Ask Jeeves now expects second-quarter revenue of $23.5 million and earnings from continuing operations, excluding items, of 7 cents a share. The company had previously expected revenue of $22.5 million and a profit of 5 cents a share from continuing operations, before items.

For 2003, the company forecast revenue of $94 million and earnings from continuing operations, again before items, of 26 cents a share. The company's prior estimate was for revenue of $92 million and earnings of 25 cents.

Analysts polled by Thomson First Call expect earnings of 5 cents in the second quarter and 27 cents for the year.

The company also said it plans to sell $100 million of convertible subordinated notes due 2008 in a private, unregistered offering.

Shares of Ask Jeeves were being sold in after-hours Instinet action, falling 46 cents, or 3%, to $13.75. Ask Jeeves rose 7.5% to $14.21 in regular Nasdaq trading. At least part of the reason for the increase during the regular session was a positive research note issued on Ask Jeeves earlier Wednesday.

"The butler is back!" claimed Deutsche Bank Securities analyst Jeetil J. Patel, who began coverage of the search engine with a buy rating and $17 price target.

"Industry-wide, paid search is the hottest segment in the online advertising market," said Patel, adding that paid search/placement billings are expected to hit $1.8 billion in 2003 and $3.8 billion by 2005, compared with $1 billion in 2002. Further, search has an 80% user rate, he said, making it the second-most-popular function on the World Wide Web, behind email.

Additionally, Ask Jeeves' deal with Google, in which Google puts its "AdWords Select" marketers on Ask Jeeves.com, could possibly translate into up to $1 in earnings during the course of the three-year, $100 million contract, Patel said. Already, operating margins hit 13% in the first quarter.

Ask Jeeves is well-positioned because it is "vertically integrated," said Patel. "The company owns its consumer audience, enjoys a strong foundation in search technology, and has paid placement relationships with strategic advertisers and Google."

Deutsche Banks sees 2003 EPS of 25 cents on revenue of $102 million, and 2004 EPS of 42 cents on revenue of $130 million. Analysts' consensus is 27 cents a share in 2003 and 35 cents a share in 2004. The company earned 7 cents a share in its most recent quarter.

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