JJ...
Appreciate your comments. Here is another article that may be of interest from Business Week on-Line. Some of it is not at all directly related to EXLN but they do mention WEBM
So far today, EXLN is finally up 3/8!!!
Bob T.
Has B2B Really Bounced Back?
Investors may be falling in love again with software maker Ariba but still aren't convinced that the rest of the sector is viable
Amey Stone covers investing for Business Week Online
Got a question or comment? Go to our Ask Amey Stone Forum
Choose a category
Chart Adv. Chart * Quote Co. Profile Co. News Co. Stats Estimates
Enter ticker or name
Charts by BigCharts.com
Perspective
Company Closeup
Movers & Shakers
Street Wise
Clicks & Misses
Data Mine
Chats With...
The recent blockbuster quarterly results of e-commerce software vendor Ariba (ARBA) startled investors, persuading them to take another look at business-to-business (B2B) stocks, a sector that had been left in the dust last spring. But while stocks in the sector ran up for a few days and business writers proclaimed that B2B is back, (as in Business Week's July 31, 2000, "It's Happy Times Again for B2B"), the reality is a little more complicated than that.
Some recent strong quarterly results may have convinced investors that B2B euphoria has a smidgen of reality to it. But given the 70% price drops some of the group's former stars have endured, investors likely will need more proof to get truly excited about these names again, says Scott Kessler, an Internet stock analyst with Standard & Poor's credit-rating agency. "We will see less indiscriminate buying," agrees U.S. Bancorp Piper Jaffray analyst Jon Ekoniak, "and more informed decisions among investors."
The truth is that while investors are once more flirting with B2B e-commerce -- a generic term that refers to the crop of companies aimed at helping one business sell to another over the Net -- it's really only Ariba that they have fallen in love with again. The volatile stock is now back up to around $117, after trading as low as $49 in May, following its plunge from a March high of $183.
SHORT-TERM BOOST. On July 12, the company reported that it had doubled revenues, to $81 million, from the preceding quarter -- blowing through analysts' expectations. Robertson Stephens analyst Eric Upin believes Ariba has the potential to be a $2 billion- or $3 billion-a-year company with 30% operating margins in just a few years. As his top pick, he says Ariba "could be not only the fastest-growing company in terms of revenues but also the most profitable."
Ariba's phenomenal results gave many stocks in the sector a lift, but several haven't held onto their gains -- including ones that also reported great quarters. Ariba's main competitor, Commerce One (CMRC), reported on July 18 that its revenues rose to $63 million, 80% over the prior quarter and surpassing Wall Street estimates. Yet Commerce One shares, which ran up to $70 prior to posting results, have slipped back to around $50. Its 52-week high, reached last December, was $165. Freemarkets (FMKT), which helps companies run online auctions to get the best prices on goods and services, posted an 80% gain in sales, to $19 million on July 24. It got a boost for one day but was fairly flat in the following two trading sessions.
And those are the "success" stories. Still in the doldrums are the companies that plan to make their money from running independent online marketplaces (vs. Ariba or Commerce One, which sell software to set up online marketplaces). The B2B bubble was built on the idea that trillions of dollars of business would someday be conducted in huge online marketplaces and that the independent companies that ran them would reap huge profits by taking a slice of each transaction. (To get a handle on the marketplace idea, think of a fish market, where many buyers and sellers come together in one place. Now picture that being conducted online.) Industry analysts predict global B2B markets will grow to $7 trillion by 2004.
SECTOR SLIDE. Stocks of companies that plan to run the electronic marketplaces and that were the B2B darlings last fall, such as Ventro (VNTR), VerticalNet (VERT), and Internet Capital Group (ICGE), have crash-landed and are 70% or more off their peaks. Once a highflier, Ventro was downgraded by several firms on July 21, after it reported $25 million in revenues for the second quarter, less than analysts expected. It's now trading at around $13, down from a March high of $243. Internet Capital Group, an incubator for many independent B2B exchanges (which has also suffered since the market for B2B initial public offerings dried up), is now trading at around $37, down from a high of $212. Upin recommends the stock as a diversified B2B play. "At these price levels, I think the stock is pretty interesting," he says.
The slide for the sector began after it became apparent that large companies would form their own online marketplaces in huge manufacturing industries, such as autos and airlines. And even in highly fragmented industries, such as food or medical supplies, four or five independent companies were suddenly vying to start marketplaces. Of the independents, Michael Dubrow, an analyst at Jacob Asset Management says, "they have a tough road ahead of them. I'm not convinced there is room for an independent exchange."
Furthermore, it's now clear to investors that it will take years for any of the marketplaces (industry or independent) to work, says Eric Kintz, head of the American e-commerce practice at management-consulting firm Roland Berger & Partners. "People didn't understand how long it would take," he says. "The complexity of implementation is huge." Setting up the marketplaces is akin to building a shopping center in the middle of the jungle, says Upin. You need goods and customers, and you can't make them materialize until there are virtual roads and electricity leading to the online marketplaces. Even then, "the business models aren't fully worked out yet," says Ekoniak, who thinks the independent marketplaces still have a shot at success. "They are really the next step," he says. "Their wave will come."
LOOKING AHEAD. For now, to the extent that B2B is back, it's really the software companies, including Ariba, Commerce One, i2 Technologies (ITWO), and webMethods (WEBM), that are attracting Wall Street's interest. Dubrow owns Commerce One, which compared to Ariba, "is a bigger bet that the exchange is going to work and add value." But it also is a cheaper stock, he adds. There are still huge risks for the sector, which is at a very early stage. Investors are skittish when it comes to money-losing Internet companies these days, and Ariba and Commerce One aren't expected to be profitable until the third quarter of next year at the earliest.
One big cloud on the horizon is the potential for government intervention. E-commerce marketplaces boast that they will allow improved collaboration and communication between companies. But that could sound an awful lot like collusion to government regulators, who so far are staying in the background. The biggest risk is that companies will build the online marketplaces and no one will use them. "You have no proof in the pudding because these exchanges aren't really up yet," says Kessler. B2B may be back in favor, but the industry is still at a very early and unproven stage. |
