Updated from 5:27 p.m. EST



, the Internet spinoff being acquired by majority shareholder

Network Associates

(NET) - Get Report

, on Wednesday beat Wall Street earnings estimates for the first quarter on revenue that was just shy of expectations. New subscribers, however, dropped from the prior quarter.

Sunnyvale, Calif.-based McAfee also affirmed guidance for the second quarter but raised its revenue estimate modestly for the full year.

McAfee said it earned $5.5 million, or 11 cents a share, on revenue of $18.8 million in the first quarter, which ended March 31. That compares with a net loss of $2.8 million, or 6 cents a share, on revenue of $12.8 million the same period a year earlier. Earnings climbed sequentially from $904,000, or 2 cents a share, in the fourth quarter, and revenue rose slightly from $18.6 million in the fourth quarter.

On a pro forma basis, excluding a credit related to stock-based compensation, the amortization of intangibles and charges related to the tender offer, pro forma earnings totaled $3.9 million, or 8 cents a share. That compares with a pro forma net loss of 3 cents in the same period a year ago and pro forma net income of 9 cents a share in the fourth quarter.

Wall Street expected McAfee to report earnings of 6 cents a share on revenue of $19 million.

McAfee CFO Evan Collins indicated comfort with the consensus estimate for the second quarter, which pegs earnings at 7 cents a share on revenue of nearly $21 million. For the full year, he said revenue should range from $89 million to $90 million and earnings should range from 27 cents a share to 30 cents a share.

The consensus estimate was for McAfee to earn 28 cents a share on $88 million for the full year, according to Thomson Financial/First Call.

New net subscribers for the quarter totaled 101,000, a drop from more than 125,000 acquired in the fourth quarter. McAfee's total unique subscribers surpassed 1.45 million in the first quarter.

That was the low end of company guidance for a quarter without a high-profile virus attack, in which it typically expects new subscribers to range from 100,000 to 150,000.

Jonathan Feeney, an analyst with Credit First Suisse Boston, called the revenue and new net subscriber numbers "modest disappointments." "With so many unprotected PCs out there, investors want to see revenue and net subscriber numbers go up," said Feeney, who has a buy rating on McAfee and Network Associates.

Overall, however, Feeney viewed the quarter as a "modest positive" because cost controls led to the higher earnings. His firm hasn't done any banking with the company.

Before the market opened Wednesday, Santa Clara, Calif.-based Network Associates said it sweetened its bid to buy McAfee. The new offer would give McAfee shareholders 0.78 shares of Network Associates common stock tax-free in exchange for each McAfee share, a 15.6% increase from the original deal that proposed exchanging each McAfee share for 0.675 share of Network Associates.

A special committee of independent directors, which rejected the earlier bid, advised McAfee that the latest offer is fair, and the McAfee board has recommended that stockholders accept the offer. It remains contingent on Network Associates exchanging enough shares to own at least 90% of all McAfee outstanding stock. Network Associates, which spun off McAfee to sell its security software via the Internet during the dot-com boom, currently owns 75% of McAfee shares.

Network Associates delayed the original acquisition a few days last month after disclosing that the

Securities and Exchange Commission

is investigating its accounting practices in 2000. Network Associates said it wanted to buy back McAfee to reduce confusion about the two companies' products, which share the same name and focus on the consumer market.

"Nobody knows which McAfee they're dealing with," said McAfee CEO Srivats Sampath in a conference call Wednesday. In addition to clearing up brand confusion, he said the acquisition by Network Associates will give McAfee a more comprehensive consumer strategy and access to a larger sales force. "There's some scale that is suddenly brought upon this company," said Sampath, who expressed support for the deal. "We truly believe that scale will have an impact."

Shares of McAfee rose 68 cents, or 4.1%, to close at $17.18. Network Associates' shares fell 35 cents, or 1.6%, to close at $22.15. Shares of McAfee rose further to $17.55, and shares of Network Associates climbed to $22.70 in after-hours trading.