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Netscape reacts to profit news

The company's stock reacts to the news that it eked out a $88,000 profit for the third fiscal quarter.

Shares of Netscape Communications retreated from an earlier rise this morning after the company announced yesterday that it had eked out a $88,000 profit for the third fiscal quarter in posting its earnings yesterday, citing "strong momentum" in its enterprise software and Web site businesses.

Netscape rose as much as 2.33 percent in early trading today before falling 1.36 percent from yesterday's close. The stock was trading at 31.44. The stock was trading well below its 52-week high of 44.63. Netscape was upgraded to "accumulate" by Deutsch Bank Securities analyst Alan Braverman on the news of its earnings.

However, the company posted an operating loss of $2.1 million for the quarter. According to First Call, Netscape had been expected to post a loss of 2 cents per share. Adjusted for special charges, the company beat Wall Street's quarterly estimates.

Netscape recorded quarterly revenue of $150.2 million for the three months ended July 31, up from $136 million for the like quarter a year ago. Quarterly revenue for the enterprise software and services business was $111.6 million, while revenue from its Netcenter Web site was $38.7 million. It marks the first time that Netscape has broken out results from the two business segments.

"Overall, we are pleased with the results we posted for the quarter," Netscape at a glance chief executive Jim Barksdale said in a statement. "We're seeing strong momentum in both the enterprise and Netcenter businesses, as demonstrated by the number of significant customers wins announced during the quarter."

The company added that Intuit chairman Bill Campbell would join the company's board. He replaces Adobe CEO John Warnock.

This break-even quarter compares with a loss of $44.7 million (53 cents) for the like quarter a year ago. On an operating basis, the quarter's $2.1 million loss compares with a loss of $40.9 million a year earlier.

For the third quarter, Netscape posted interest income of $2.14 million, pushing the company into the black on a net basis.

"I thought they executed well," said Andrea Williams, an analyst at investment bank Volpe Brown Whelan. "This was a strong quarter for them on both sides of the business."

Netscape CFO Peter Currie said product license revenues on the enterprise software side were bolstered by several purchases of more than $1 million. "We continue to be successful selling very large deals," he added.

"Their [business software] customer wins were positive," Williams noted. "They had a good mix of new customers and existing customers. That means to me their existing customers are happy with their results so far." During the quarter, Netscape announced a major deal with Ford for its directory server.

Meanwhile, Netcenter general manager Mike Homer said the company showed strong traffic numbers on the portal, which was relaunched last month.

In July, the site saw a 10 percent increase in page views and the daily average increased to 22 million page views from 20 million in June, according to Homer. Netcenter also added more than 500,000 new registered users last month bringing the total to 6.2 million users.

Nevertheless, Williams, who has a "neutral" rating on the stock, has some concerns about the spilt business model.

"They're trying to succeed in the media business and in the software business," she said. "That's a huge challenge that nobody has successfully tackled to date."

Netscape stock closed nearly 6 percent higher yesterday at 32.125, ahead of the news. The shares have traded as high as 44.625 and as low as 14.875 during the past 52 weeks.