Updated from 14:27

PurchasePro.com

(PPRO)

shares rallied sharply Tuesday after the business-to-busines software outfit

whipped fourth-quarter earnings estimates. But not everyone was equally impressed.

Coming Down
PurchasePro's winter doldrums

PurchasePro's earnings report, released Monday evening, shows the company earned 11 cents a share on a pro forma basis, beating analysts' consensus earnings estimate by a whopping 12 cents, according to

First Call/Thomson Financial

. But in the wake of the report, some disagreement remains over what is the "right" number for PurchasePro's latest-quarter earnings. Several analysts say PurchasePro's treatment of the numbers could have added as much as 4 cents a share to pro forma earnings -- far from enough to reverse the upside surprise, but hardly an insignificant figure, either. The report comes after an

eventful week for PurchasePro, whose doubters have at times questioned whether it has been

aggressive in its accounting.

A PurchasePro representative didn't return a call seeking comment. The stock fell 3 cents, or 0.2%, to $15.88 Tuesday.

Two Questions

Analysts focused on two issues in PurchasePro's earnings report, the share count used for pro forma earnings and the company's decision to exclude a noncash marketing expense from that number, which is the one investors tend to focus on.

First, the share count. Analysts note that in calcuating pro forma earnings per share, PurchasePro used about 10 million fewer shares than expected, boosting EPS. Using the share count analysts expected, the fully diluted number, pro forma earnings fall to 10 cents a share.

To be sure, the company pointed this out on its conference call, saying it used the lower share count to comply with securities rules governing a bottom-line loss. (If you include all charges, which analysts usually don't, PurchasePro lost $36.8 million, or 55 cents per share, during the quarter.)

The second question arises from a $2.77 million noncash marketing expense that PurchasePro chose not to count against reported earnings. If you include that charge and use the higher share count, as some analysts do, the EPS number comes to 7 or 8 cents.

The question came up because analysts weren't quite sure what that charge was for. Tim Getz, an analyst at underwriter

Prudential Securities

, said the charge was for a marketplace software license that the company bought out. The company didn't detail it on its call.

Bad Week, Good Week

The questions about the earnings stem in part from the recent turbulence surrounding PurchasePro. Last week, the stock plunged 42% after the company received a negative writeup in

Barron's

, suffered a downgrade by its underwriter and got sued by a convicted money launderer who is a former business associate of CEO Charles Johnson Jr. The company said the lawsuit was without merit and that it would defend itself vigorously.

"These guys have had a lot of negative things happen to them this week, and I think it's natural for people to take two looks at the numbers," says Getz, the Prudential analyst who downgraded the stock from strong buy to accumulate last week. "But the numbers, from what I've seen, look clean." He excluded the $2.77 million marketing charge from his numbers and put the company's earnings at 10 cents per share.

"There's almost a tendency of people out there to think the numbers are so good that there's got to be something wrong here," adds Robert Johnson, an analyst with

ABN Amro

who rates PurchasePro buy, his firm's highest rating. "It's more of a question of what did they do to get them.

"I've got a lot of questions as to whether or not anything was left out of there this time," says Johnson, whose firm hasn't done underwriting for PurchasePro. He also pegged EPS at 10 cents.

Beauty Contest

Recent events are also why PurchasePro wheeled out executives from partners

Honeywell

(HON) - Get Report

,

Computer Associates

(CA) - Get Report

and

Hilton

(HLT) - Get Report

on its call to talk up their relationships with the company. Those kinds of endorsements, it should be noted, don't come easy, and companies of this caliber don't lend their good names to partners they think will ultimately damage their reputations.

"Clearly, between the

Barron's

article and the lawsuit filed last week, PurchasePro felt they had to do something more than your typical conference call to show this model works," says Patrick Walravens, a

Lehman Brothers

analyst who rates PurchasePro a strong buy and whose firm hasn't done underwriting for the company.

Monday night, Walravens was reluctant to exclude the $2.77 million charge in his analysis, and said EPS might be closer to 7 cents per share, though he wanted to find out more before deciding definitively what EPS should be. In a research report Tuesday morning, he pegged earnings at 9 cents per fully diluted share.

That said, there's little disagreement that PurchasePro had a strong quarter. One of the reasons the company was able to beat earnings by such a wide margin was that it kept its costs low. For instance, Lehman's Walravens said he was expecting sales and marketing expenses of $18.3 million. PurchasePro's actual expense was just $13.5 million, or 26% lower than Walravens expected.

And the company raised its revenue and earnings guidance for the first quarter and full year of 2001, something that's becoming a rarity among tech companies. Aside from the debate over what the earnings number was, analysts were genuinely surprised by the improved guidance, and impressed by the quarter.

"It's hard to complain about the numbers, and it's hard to complain about the partners when you have them dialing into the call and telling you the stuff works," Walravens says.

In other words, the quarter was good -- even a blowout -- any way you look at it. Just don't get too attached to a single EPS number.