The smaller stocks in the B2B-area, also mentioned in the
in the Goldman & Sachs/3.000.000.000.000,- -article, are
really hot today. CMRC, ARBA, VERT, HLTH.
Before dumping Oracle and jumping the "little ones"
read this one first. Explains why Oracle and Sap are
for the investor, the other ones more for the traders.
I prefer to invest. Good article, btw.
Move Over Y2K, B2B Is
Here
By Adam Lashinsky
Silicon Valley Columnist
9/17/99 7:00 AM ET
Business-to-business e-commerce now officially is
the Next Big Thing. Why? Because Goldman
Sachs says so in a report it issued Thursday. 'Nuff
said. Pay attention, though, to the details beneath
the hype. They suggest it also is going to be the
Next Big Disruption for tech-stock investors who get
caught crosswise of the euphoria.
B2B, as the smart set calls it (yes, you're going to
hear this every bit as much as Y2K), indeed is
going to be big. Goldman's analysts estimate
overall B2B industry revenue of $1.5 trillion by 2004.
This means that revenue associated with commerce
conducted over the Internet between and among
businesses, as opposed to consumers, will grow
more than 10-fold from an estimated $115 billion
this year.
A few potential B2B problems bubbled to the
surface, however, for those who listened carefully to
Goldman's conference call with institutional
investors immediately before its teleconference with
reporters.
See, Goldman wants to hype B2B e-commerce
because right now there are precious few publicly
traded B2B stocks, a short list that includes Ariba
(ARBA:Nasdaq), VerticalNet (VERT:Nasdaq),
Commerce One (CMRC:Nasdaq), IntraWare
(ITRA:Nasdaq), Internet Capital Group
(ICGE:Nasdaq), pcOrder.com (PCOR:Nasdaq),
Chemdex (CMDX:Nasdaq) and Healtheon
(HLTH:Nasdaq). The combined revenue over the last
year of those fledgling companies is just over $200
million, about 3 1/2 days worth of sales for Dell
Computer (DELL:Nasdaq). If industry sales really
are to explode within five years, there'll be tons of
upstarts for Goldman to take public (see below).
The catch is that Goldman's hot-shot Internet
analyst Rakesh Sood and veteran software guru
Richard Sherlund dutifully point out the risks with
B2B. For credibility, they must. Presumably, they're
also beginning to establish the difference between a
Goldman client and everyone else.
For one thing, it's a given that scores of inferior B2B
companies will try to sneak through the IPO
process along with the good ones.
Business-to-consumer offerings started as a trickle
before the floodgates opened this year. B2B stocks
will skip quickly to the overkill stage. "We have to
beware of the hype," says Sood.
The six-analyst Goldman report is more specific:
"Regarding stock recommendations -- we believe
that there will be a number of beneficiaries, but
fewer long-term winners." Remember that when
scrutinizing a specific IPO candidate being brought
public by Goldman or one of its competitors.
Sood also touches indirectly on one of the
fundamental problems of B2B: Automating
slim-margined businesses creates automated
slim-margined businesses -- not instant technology
companies. He speaks of B2B companies having a
"revenue blend." Translation: Many B2B companies
won't be particularly profitable on most of what they
do, even if they are extraordinarily profitable in some
part of the business.
Sherlund is more specific. He notes, with envy, that
the best of the companies Sood follows typically
trade at 20 or 30 times their revenue. In contrast,
Sherlund's top picks fetch a meager 50 to 60 times
earnings. As established enterprise software
companies like Oracle (ORCL:Nasdaq) and SAP
(SAP:NYSE) gun for Internet-type valuations, they'll
have to tear up their business models and start from
scratch. And that, says Sherlund, will make for a
difficult transition for many. He predicts more older
companies will consider issuing tracking stocks for
their B2B efforts and that the clashes between
entrenched players and the "dozens" of startups will
be tumultuous.
Another usually unspoken truth about the new crop
of B2B stars is that they're actually software
companies masquerading as Internet concerns.
Unless a company has predictable, recurring
revenue streams, like B2B standouts Yahoo!
(YHOO:Nasdaq) or America Online (AOL:NYSE),
it's just another enterprise software company, albeit
in a new niche. This is relevant because software
makers that make big-ticket sales to a handful of
customers are famously susceptible to
end-of-quarter deals that yield the dreaded
hockey-stick sales curve. Back-end loaded quarters
make for poor visibility, which makes for volatility in
the stock.
Says Sherlund: "You don't want to pay 20 to 30
times revenue if you're unsure if they're going to
make the quarter." |
