May 12 2000 12:30PM ET More on Going Public...
XML Demand Powers Sequoia?s IPO
By Hal Plotkin
Silicon Valley Correspondent
Sequoia Software Corp.?s {SQSW} focus on creating XML-powered business portals has delivered the company a strong open for its initial public offering, despite the recent slowdown in demand for new stock issues by money-losing Internet firms.
Shares opened at 10 1/4 on Friday. Late Thursday, Sequoia priced its 4.2 million share offering at $8 a share, the low end of its stated range of $8 to $10. Late last month, the company lowered its proposed IPO filing to from 6.1 million shares and lowered its filing range from $9 to $11 a share.
Sequoia Systems Post-IPO Stock Performance Chart
XML, more formally known as eXtensible markup language, provides a standardized data format that can make Internet Web pages and internal corporate networks more user-friendly, powerful and efficient. It does so by helping otherwise incompatible applications exchange data, enabling the automation of many kinds of online processes.
"XML can also make the difference between using a search engine and getting back 30,000 results or getting back just 30 results, which are the right 30 results," says Lisa Rein, a contributing editor at XML.com, a leading online source of XML news and information.
Like its newly public competitor, Fairfax, Va.-based webMethods Inc. {WEBM}, Sequoia Software hopes to cash in on growing demand for XML solutions in the business-to-business, or B2B, and business-to-employee, or B2E, markets.
The more-established webMethods went public on Feb. 10, with shares initially priced at $35 each, $5 above the initial price range targeted by the company. The stock quickly shot up to more than $300 a share before recently falling back to about three times its offering price.
webMethods Post-IPO Stock-Performance Chart
"Sequoia is a lot like webMethods," Rein says. "Like the other companies in that space, what they?re doing cooks down to businesses being able to more easily read each other?s messages. Sequoia is positioned really well in that area. They have some real technology going and some impressive marketing alliances and partnerships."
The overall market for B2B transactions is expected to top $7 trillion by 2004, according to Dataquest, based in San Jose, Calif., a part of the Gartner Group?s Market Dynamics organization.
"We believe 80 percent-plus of B2B will be XML-based," says Mark Driver, research director with the Gartner Group?s e-business technology service. "XML is becoming the lingua franca for B2B."
Projections of skyrocketing demand have helped the stocks of other XML-centered companies, such as Ariba Inc., {ARBA}, Commerce One Inc., {CMRC} and Vignette Corp. {VIGN}, at least partially withstand the downward pressure that pushed many other Internet stocks well below their initial offering prices in recent weeks.
ARBA 52-week CMRC 52-week VIGN 52-week
Columbia, Md.-based Sequoia, like legions of its competitors, is initially targeting the emerging business-portal market. Business portals allow companies to create a single online site they can use to communicate with employees, customers and suppliers. XML technology is particularly important in such settings, as they often contain dozens of otherwise incompatible legacy systems.
E.I. du Pont de Nemours & Co. {DD}, for example, recently completed installing a trial Sequoia Software XML business portal. The company currently estimates it will save as much as $66 million by letting its sales and marketing units turn to a single online site where they can find everything needed to do their jobs.
Oftentimes, business portals become the standard desktop within a company, tying the entire organization together. Eventually, as many as 60,000 duPont employees could be linked by the Sequoia XML portal, according to public statements by company officials.
Sequoia Software is also a Microsoft Corp. {MSFT} certified vendor.
"The Microsoft association helps them a lot," Rein says. "Small companies need endorsements like that to get credibility."
Industry watchers, such as Rein, say Sequoia?s post-IPO success will depend on whether the company has the marketing hustle to out-maneuver competitors both large and small that are targeting essentially the same market.
Larger competitors now touting XML solutions include Hewlett-Packard Co. {HWP}, International Business Machines Corp. {IBM} and Oracle Corp. {ORCL}.
There are many other smaller pre-IPO players, including firms such as Portsmouth, N.H.-based BowStreet.com Inc.; Epicentric Inc., of San Francisco; Plumtree Software Inc., also of San Francisco; and Portal Wave Inc., based in Sunnyvale, Calif.
"They?re coming out of the woodwork," says Lauren Shu, Internet e-commerce analyst at the Gartner Group.
"The fact is this is a huge market that is going to explode in the next 12 to 18 months," agrees her colleague, Driver. "You?re going to see a tremendous number of companies coming to market with XML e-commerce products. After that, though, the companies will begin to eat each other."
Driver isn?t, however, worried about the XML sector?s overall long-term prospects.
There are, Driver says, dozens of other potentially lucrative applications of XML technology, in addition to powering business portals. Providers of wireless Internet applications, for example, will need XML solutions to deliver competitive personalized content to large numbers of users.
"We?ve barely scratched the surface of where all this is heading," Driver adds.
"The market is very much undeveloped," agrees Uttam Narsu, senior industry analyst at the Giga Information Group, based in Boston. "I agree Sequoia has the technology. But it?s going to come down to who can execute on it. Right now, the vendors are ahead of the customers, many of whom are confused."
Narsu says he is also convinced XML technology will play a vital role in the future, but he adds it could take longer than some analysts expect before business portals become truly ubiquitous.
"I think it?s going to happen," Narsu says. "Just not as quickly as some might hope."
Sequoia Software posted a loss of $12.7 million on revenue of $8.4 million in 1999, as compared with a loss of $3 million on revenue of $4 million in 1998.
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