....WebMethods (WEBM)
About: WebMethods is a developer of business to business solutions. The company's software is
based around the emerging language of XML. Using WebMethod's business to business solutions,
companies can communicate, purchase, and manage their supply chain, link with internal databases,
and further automate the procurement process. For companies that require unique solutions,
WebMethods offers the ability for either themselves or WebMethods to design individual programs
based on WebMethod's APIs (Application Program Interfaces). Recently Dell Computer partnered
with WebMethods to develop a unique business to business procurement services for their large
corporate, government, and institutional customers. Other key WebMethods customers include, Dun
& Broadstreet, Citibank, VerticalNet, and others.
Key Competitors: BroadVision, OpenMarket, Commerce One
Financial Information:
1999 Sales: 4.5 million dollars
1999 Sales Growth: about 2,600%
1999 Net Income: Loss of 3.3 million dollars
IPO Information:
Range: 11 to 13
Float: 4.1 million shares
Post-Offering Shares: 31.2 million shares
IPO Valuation (based on a price of 13 dollars): 405.6 million dollars
Underwriters:
Lead: Morgan Stanley Dean Witter
Others: Merrill Lynch, Dain Rauscher Wessels, Friedman Billings Ramsey
Analysis: Hmm.....business to business e-commerce enabler, excellent underwriting team,
ultra-cheap valuation, stunning sales growth, minor losses, small float, etc. This deal has all the
makings of a moon-shot. The market is in love with business to business stocks and even more
specifically platform agnostic business to business enabling stocks like WebMethods. Unlike
companies such as Vertical Net which operate business to business marketplaces, WebMethods
designs and implements unique business to business solutions for their customers. We prefer the
model of companies such as WebMethods to that of Vertical Net for the simple reason that the
majority of large corporations want and are willing to pay for their own business to business
e-commerce solutions. Why? Business to business marketplaces may offer pricing benefits but they
are in most cases unable to be tightly integrated with individual supply chain software, inventory
management, databases, and other company specific features. WebMethods' sales are growing at
astonishing rates, basically from nothing 2 years ago to 4.5 million dollars last year. Losses are hardly
a concern in this sector especially in this case because they are so minimal. In terms of valuation,
WebMethods is currently ridiculously cheap, but expect Morgan Stanley to raise the range and thus
the valuation to the point where WebMethods is simply cheap rather than ridiculously cheap. The
underwriting team is excellent, led by the best in the business, Morgan Stanley Dean Witter. Overall
expect a huge premium for our Pick of the Week.
YOUR THOUGHTS? Gordon |
