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Amid Earnings Gloom, Some Positive Signs

Another reporting season is getting under way, and judging by the market's initial underwhelming response, it looks like Internet companies will once again be running a rugged gauntlet as investors continue to ratchet up earnings expectations and drive down stock prices.

Several 'Net companies in the past week released Q4 figures, including Yahoo, Ariba and Doubleclick. Of the three, only DCLK saw shares rise in the wake of its quarterly report.

But all three had some good news in the numbers, even though each warned about slower revenue growth in the current quarter and for the year.

OK, maybe Yahoo didn't have any good news in its forecasts. Still, the company made clear that it has the resources ($1.7 billion in cash and marketable securities, and no cash burn) to survive some tough times.

Ironically, DoubleClick was the only gainer of the three, despite barely posting a net profit of $216,000, or break-even per share. Shares soared 31% to close at $14.75 on Friday, Three things explain the market's positive reaction: 1) DoubleClick beat street expectations of a 2 cents per share loss, not to mention its own mid-December warning of a 3-cents-per-share net loss; 2) The online advertising services market leader crossed a crucial threshold by proving it could post a profit, however slim; and 3) DCLK shares had been trading at 52-week lows already, dipping below $10 per share on several occasions in the past two weeks.

DoubleClick projected a Q1 loss of 7 cents to 9 cents per share, lower than the 11-cent-per-share loss from the year-ago period, but higher than street estimates calling for a net loss of 6 cents per share.

While not exactly inspiring for Internet investors these profit-conscious days, DCLK's numbers may actually be reassuring to the market, since they suggest a reasonable limit on the downturn in online advertising revenue. Compared to the bottomless pit conjured in the minds of panicky investors, DCKL's short-term outlook is more daunting than deadly. Further, DoubleClick now gets more than half of its business (52%) from non-Internet companies, further allaying investors' fears.

Yahoo lost 15% on Thursday after meeting analysts' expectations with Q4 earnings of 13 cents per share. But it wasn't the quarterly results that dropped YHOO shares; it was the search and portal company's forecast for the first quarter and current year, a forecast that calls for annual earnings to be 25% to 42% below expectations.

That kind of performance, or just the threat of it, should push YHOO shares below $20. Should the market continue to flounder, Yahoo could see its stock tumble into the single digits. And while company executives say they see no need for layoffs, look for a change of heart this spring if online ad revenue remains soft and YHOO shares fail to rebound.

Meanwhile, e-commerce software vendor Ariba blew away street estimates of a 3 cents per share net profit by posting a 5 cents per share profit for its fiscal first quarter. But its stock was punished on Friday, plunging 19% on company warnings that sales growth will slow.

Not helping was a comment by Ariba's CFO last week that the company would "fare better" than competitors in the current market because its software is designed to help businesses cut costs, a high priority during a slowdown.

That assurance sent ARBA shares up 27% last week and raised investor expectations, which were promptly dashed when the company predicted only 8.7% growth in the current over the previous quarter, compared to 26% sequential revenue growth in Q1 and growth of 70% to 100% in previous quarters.

For Yahoo, DoubleClick and Ariba, along with nearly every other Internet company, the next couple of quarters (at least) will be challenging and stressful. But these are among the minority of 'Net companies that will survive the downturn. It's important f