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Internet to see profit sooner than expected

The search engine operator easily hurdles expectations in the second quarter and expects to become profitable two quarters ahead of schedule. easily hurdled expectations in the second quarter and expects to become profitable two quarters ahead of schedule.

    After market close Wednesday, the search engine operator reported a second-quarter loss of $2.9 million, or 6 cents per share. First Call's survey of analysts produced a consensus forecast calling for a loss of 17 cents per share in's second quarter. now expects to generate profits in the third quarter. Analysts weren't expecting earnings from until the first quarter of next year.

    The company sees earnings of 2 cents per share in the third quarter and 5 cents per share in the fourth. also predicted 2002 earnings of 31 cents per share, in line with First Call's estimate.

    Wall Street was primed for good news. Shares of rose 10.3 percent to $21.15 in Wednesday's regular trading ahead of the second-quarterr report, and they traded at $23.42 in after-hours activity on the Island ECN after the news. Although shares of remain far below their 52-week peak, the company's relatively strong performance has let it hang onto a high stock price, at least compared with other dot-com companies.

    Second-quarter revenue nearly tripled year-over-year to $62.5 million, which represents a 20 percent improvement from the first quarter. According to First Call, at least one analyst, U.S. Bancorp Piper Jaffray's Safa Rashtchy, predicted revenue of $54.3 million for's second quarter. topped Rashtchy's sales forecast by 15 percent.

    Prior to's report, Rashtchy said the company could exceed his second-quarter revenue estimate by about 10 percent.

    Click-throughs collects fees from advertisers who bid on the rights to search keywords. Companies that bid the highest per-click fees for a keyword are ranked first when's engine returns results for that particular search.

    Advertisers paid an average of 19 cents per click-through in the second quarter, compared with 21 cents in the year-ago period and 16 cents in the first quarter of this year. Paid clicks in the second quarter totaled 323 million, compared with 314 million in the first quarter.

    "We believe the company continues to increase the distribution of its search listings by expanding existing partnerships," Rashtchy wrote.

    Affiliate deals generate about 95 percent of's paid clicks, the company said.

    Auction division spinoff
    Also Wednesday, in an expected move, GoTo announced that it spun off its GoTo Auctions division. GoTo announced earlier this year that it was exploring a possible sale of the unit, which has been renamed ChannelAdvisor.

    ChannelAdvisor provides auction management tools for sellers on eBay and other online auction sites. Unlike some of its competitors, such as AuctionWatch or Andale, the company has focused primarily on big business clients. Among its customers are Sun Microsystems, IBM and

    GoTo launched GoTo Auctions after buying in May for about $101 million in stock. As part of the spinoff, which was completed earlier this month, AuctionRover's former management, including co-founder Scot Wingo, bought back 81.5 percent of the company from GoTo. GoTo will retain an 18.5 percent share in ChannelAdvisor.

    Wingo, who is the chief executive of ChannelAdvisor, declined to give a specific number for how much his management team paid to buy back the company, but said it was less than $50 million in stock. On top of that amount, Wingo and the management team invested $3 million of their own money to fund the new company, which is based in Research Triangle Park, N.C.

    The spinoff is good for both companies, Wingo said. It allows GoTo, which is focused on being profitable, to unload itself of ChannelAdvisor, which is about 18 months from being in the black, he said. For ChannelAdvisor, the move allows it to have the flexibility and independence of a start-up, he said.

    "One way to think about it is that we weathered the storm," Wingo said. "We went under a bigger umbrella and incubated this product as a part of GoTo. Now that there's a little less risk, we'll be able to be a small independent company."

    About 40 employees will join ChannelAdvisor from GoTo. Although Wingo said the company did not lay anyone off as part of the transition, some GoTo employees chose not to join ChannelAdvisor.