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eToys gets off the mat

eToys Inc. (Nasdaq: ETYS) investors finally got something to smile about Thursday when Salomon Smith Barney initiated coverage of the online toy retailer with an "outperform" recommendation. Its shares moved up 1 5/8, or 12 percent, to 15 1/4.

After peaking at 86 in October, eToys shares have been in a free fall, tumbling to an all-time low of 13 5/8 earlier this week.

Salomon Smith Barney set a 12-month price target of $20 a share.

In its latest quarter, eToys met analysts' estimates, posting a loss of $62.5 million, or 52 cents a share, on sales of $107 million.

Including charges, eToys reported a third quarter loss of $75.5 million, or 63 cents a share. In the same quarter a year ago, eToys reported an operating loss of $8.2 million, or 9 cents a share, on sales of $22.9 million.

The company reported an average order size of $67 a share, a customer acquisition cost of $33 and gross margins of 19 percent. The company also said its inventory was manageable following the holidays. Many e-tailers, including Amazon.com (Nasdaq: AMZN), were planning to "err on the side of overcapacity" to meet demand.

eToys said its customer base jumped to 1.7 million in the December quarter, compared to 611,000 at the end of the September quarter.

In its latest quarter, chief competitor Amazon.com Inc. (Nasdaq: AMZN) recorded toy sales of $95 million in its fourth quarter. Other competitors include Wal-Mart (NYSE: WMT) and Smarterkids.com Inc. (Nasdaq: SKDS).

First Call consensus expects eToys to lose 32 cents a share in its fourth quarter and a loss of $1.44 a share in fiscal 2000.

Seven of the 13 analysts tracking the stock maintain a "hold" recommendation.