STOCKS TO WATCH: AOL, Gateway, IBM, Legato, Marimba and Vignette

AOL hustled past analysts' estimates in its first quarter Wednesday, raking in $184 million, or 15 cents a share, on sales of $1.5 billion.

Its shares closed up 5 3/4 to 121 ahead of the earnings report.

First Call consensus pegged the world's largest online service provider for a profit of 13 cents a share in the quarter though so-called "whisper" estimates were closer to 15 cents a share.

After watching its stock price slide for more than five months, AOL answered its critics with impressive growth in several key areas.

First of all, the $1.5 billion in sales represents a 47 percent improvement compared to the year-ago quarter when it earned $50 million, or 4 cents a share, on sales of $1 billion.

In the quarter, AOL added another 1.1 million new members worldwide, including a better-than-expected jump of 378,000 CompuServe 2000 members.

Its popular ICQ service ended the quarter with more than 45 million registered users.

By adding a total of 1.1 million subscribers this quarter, AOL now has more than 19 million registered users. And those registered users accounted for almost $1 billion of its total revenue.

In the quarter, AOL reported more than $350 million in advertising and e-commerce sales, doubling the $175 million it did in the year-ago period.

Gateway crept past analysts' estimates in its third quarter Wednesday, earning $113.2 million, or 35 cents a share, on sales of $2.18 billion. It also signed an $800 million distribution deal with AOL.

Gateway shares closed up 2 7/8 to 49 3/4 ahead of the earnings report.

First Call consensus expected the PC maker to earn 34 cents a share in the quarter.

The $2.18 billion in sales represents a 20 percent improvement compared to the year-ago quarter when it made $80.6 million, or 25 cents a share, on sales of $1.8 billion.

In the quarter, Gateway shipped more than 1.2 million units, a 39 percent jumped versus the same period last year.

Company officials said its non-PC income accounted for 15 percent of its total profit this quarter and that its Gateway.net Internet service subscriber base eclipsed the 600,000-user mark.

"Our revenue stream is growing richer and more diverse quarter-by-quarter, giving us a very strong and unique position in the industry," said CEO Ted Waitt in a prepared release.

Part of that diversification was explained by another announcement that Gateway and America Online Inc. (NYSE: AOL) will team up to offer Internet service and e-commerce and marketing opportunities.

Under terms of the deal, AOL will invest $800 million in the next two years. In return, Gateway will be featured and aggressively marketed on all its PCs. AOL will also take over control of its Gateway.net service.

Company officials said both companies will benefit from the enhanced e-commerce and marketing opportunities.

Gateway will receive $180 million in AOL stock in the deal and will spend $85 million to market software and Gateway products and services on America Online's brands.

Big Blue's third quarter generated lighter-than-anticipated revenue, and things will only get worse in the fourth, the company says.

"It was a decidedly mixed quarter," said Lou Gerstner, chairman and CEO of IBM Corp. (NYSE: IBM)

In results released after market close Wednesday, the technology giant reported third quarter earnings of $1.8 billion, or 93 cents per share. However, that included a one-time gains of $63 million, or 3 cents per share. Excluding those costs tied to the sale of pieces of the Global Network business to AT&T acquisitions of computer maker Sequent and data storage equipment maker Mylex, IBM earned 90 cents per share. That was on target with the figure predicted by First Call's survey of 22 analysts.

IBM executives predicted lower earnings for the current quarter and possibly the next. CFO Douglas Maine told analysts to expect fourth quarter per-share earnings to be 15 to 20 cents lower from the 1998 fourth quarter, when IBM earned $1.24 per share. Analyst consensus had predicted $1.33 per share for this year's fourth quarter.

First quarter earnings, which First Call had predicted would be 90 cents per share, instead will be flat or below the year earlier period, Maine said. IBM earned 78 cents per share in the first quarter of this year.

Third quarter revenue rose to a less-than-expected $21.1 billion. Analyst consensus had predicted revenue of $21.7 billion for IBM. A sale of some network businesses helped cut IBM's gross margin to 35.7 percent, from 37.2 percent in the year earlier period.

Marimba posted a smaller-than-expected loss in its third quarter, losing $580,000, or 3 cents a share, on sales of $8.3 million.

Its shares rallied up 4 5/8, or 15 percent, to 35 5/8 ahead of the earnings report.

First Call consensus expected Marimba to lose a nickel a share this time around.

Total sales rose 76 percent versus the year-ago period when it lost $1.5 million, or 15 cents a share, on sales of $4.7 million.

Third-quarter license revenues were $6.3 million, up 66 percent from $3.8 million a year ago. Service revenues more than doubled to $2.0 million, up from $929,000 for the same quarter last year. Gross margin was consistent with the third quarter of 1998 at 90 percent.

Marimba shares peaked at 74 3/8 after its May initial public offering.

Four of the five analysts watching the stock rate it a "buy."

Vignette posted a smaller-than-expected loss in its third quarter Wednesday, losing $4.8 million, or 19 cents a share, on sales of $24.2 million.

Its shares closed up 10 7/32, or 9 percent, to 119 1/16 ahead of the earnings report.

First Call consensus expected Vignette to lose 21 cents a share in the quarter.

The $24.2 million in sales marks a 459 percent explosion above the year-ago period when it lost $6.5 million, or 35 cents a share, on sales of $4.3 million.

"We are extremely pleased with our third quarter financial results and the momentum we are seeing in the marketplace as evidenced by the record 97 new customers we added in the quarter," said CEO Greg Peters in a prepared release.

Vignette is currently rated either a "buy" or "strong buy" recommendation by each of the 11 analysts following the stock.