Tim, thanks for your CMRC insights here is an SSB fact sheet on CMRC from 6-13-01............ CMRC is trading
at about 1 times this years revenue estimate, a far cry from the 220 times revenue/sales of 15-18 months ago.
But that still does not mean that the risks cited will be avoided.
The SAP relationship is critical, and possibly the relationship with MSFT will become highly meaningful as well.
John
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June 13, 2001 COMPANY DESCRIPTION
Commerce One, headquartered in Pleasanton, California, is
APPLICATION a leading provider of e-marketplace software and services.
SOFTWARE The company is focused on automating inter-enterprise
Heather Bellini, processes and creating a network of interoperable
CFA marketplaces that allow multiple buyers and suppliers to
transact and collaborate via the Web. The company refers
to this system as the Global Trading Web. Founded in 1994,
as DistriVision Development Corporation, the company began
operations as a supply-chain software company focused on
the development of CD-ROM sales catalogues. Mark Hoffman,
former president and CEO of Sybase, joined the company in
1996, and reshaped the company's vision to focus on
creating a Web-based procurement model that could link
multiple buyers and sellers to enable collaborative B2B
commerce. In 1997, the company changed its name to
Commerce One and went public in June 1999.
FUNDAMENTALS
EPS (12/00A) ($0.33)
EPS (12/01E) ($0.29)
EPS (12/02E) $0.07
P/E (12/01E) NA
P/E (12/02E) 84.4x
TEV/EBITDA (12/01E) NA
TEV/EBITDA (12/02E) NA
Book Value/Share (12/01E) $10.04
Price/Book Value 0.6x
Dividend/Yield (12/01E) NA/NA
Revenue (12/01E) $682.0 mil.
Proj. Long-Term EPS Growth NA
ROE (12/01E) NA
Long-Term Debt to Capital(a) NA
Convertible No
(a) Data as of most recent quarter
SHARE DATA RECOMMENDATION
Price (6/12/01) $5.91 Rating 2S
52-Week Range $80.75-$5.61 Target Price $11.00
Shares Outstanding(a) 199.4 mil.
First Call Consensus EPS: 12/01E ($0.27); 12/02E $0.08; 12/03E NA
INVESTMENT THESIS
We believe that Commerce One's current opportunity is in five primary
markets: direct and indirect procurement, order management, sourcing, and
trading exchange platforms. With a collective opportunity of $22.3 billion
expected by 2004, we believe the company could benefit from the development
of collaborative networks. If the company took only a 10% share of that
market, it would represent a $2.2 billion opportunity by 2004 - and this does
not assume any transaction-based revenues. Commerce One's focus on key
partnerships with industry leaders, such as SAP and Microsoft, should help it
tap SAP's large installed base, as well as Microsoft's mid-market base.
These partnerships, coupled with diverse revenue streams and a return to
profitability in the second quarter of 2002, make us relatively positive on
Commerce One in the intermediate term. Thus, we rate the company 2S
(Outperform, Speculative).
RECENT RESULTS
For the first quarter of 2001, Commerce One reported revenues of $170
million, a sequential decrease of 11%. Losses were ($0.11) compared with
($0.07) in the prior quarter. Management did note, however, that its
pipeline remained strong across all geographies. Commerce One had a difficult
quarter, along with most other software companies. However, a huge positive
for the company, in our view, was the progress the company made with its key
partners, namely SAP and Microsoft.
The SAP alliance continues to pay high
dividends, with the vast majority of the total 50% channel-driven license
revenues in the quarter resulting from this partnership (compared with 30% in
the previous quarter). Commerce One also deepened its relationship with
Microsoft, underscoring the company's goal to drive further liquidity to the
Global Trading Web.
VALUATION
Commerce One currently trades at 1.7x our calendar 2001 revenue estimate,
versus 3.3x for its comparable peer group. Based on our three-pronged
valuation approach, our price target is $11 per share. The assumptions behind
our valuation for Commerce One are:
* A discount rate of 15%,
* EBITDA multiple of 10x for terminal value calculation,
* A five-year revenue CAGR of 20%, and
* An expansion of operating margin to 14% in 2006 from (10%) in 2001.
RISKS
The build-out of collaborative networks may be slower than expected - The
collaboration space still remains relatively undefined. With so many
potential players (SAP, i2, Ariba, Oracle, and companies that build in-house
solutions) and no clear indication of where the technology is going,
companies may be hesitant to adopt the new technology and it may be rolled
out in a slow, fragmented process.
Build-out of Trading Networks Could Slow Further - Through the end of 2000,
there was much hype surrounding the development of public exchanges.
However, many folded before they could round out their management teams.
While we believe private marketplaces will prove much more viable, the build-
out of these private networks could remain on hold. This would leave
Commerce One to focus on the procurement of indirect materials, which we view
as a much less attractive business long term.
Pricing Trends Must Be Monitored - With so many big name enterprise software
companies likely to compete in both the collaboration and the procurement
space eventually, pricing may come under pressure. If and when i2, Oracle,
SAP, Ariba, and Commerce One compete in the same space, pricing trends will
need to be closely monitored.
Continued Economic Weakness May Heighten Pressure on IT Spending - A
weakening economy is likely to take a toll on all information technology (IT)
spending and e-commerce initiatives. Though procurement and collaborative
initiatives would likely lead to cost savings in the medium term, companies
faced with lagging sales and shrinking budgets may be unwilling to undertake
a multi-million dollar IT project in the near term.
Achieving Profitability - Commerce One had significantly expanded its
infrastructure by year-end 2000. As a result, the significant decline in
revenues caused by the IT spending freeze affected its breakeven point.
While Commerce One has implemented plans to lower its breakeven points, we
do not forecast profitability for the company until the calendar second
quarter of 2002. |
