Tim, I agree that CMRC looks like it'll move higher.
it's been making higher lows and the fundamental story
keeps improving. The GE agreement will prove to be a
real great partnership.
and the SAP reseller agreement is also being seen as
a significant catalyst.
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SAP Taps Commerce One Partnership for New Juice
By Adam Lashinsky
Silicon Valley Columnist
Originally posted at 7:00 AM ET 8/18/00 on RealMoney.com
As one of the premier companies to splash on the stage for software that runs online business exchanges, Commerce One (CMRC:Nasdaq - news) quickly achieved a multibillion dollar valuation on annualized sales of a little more than $100 million. Ironically, it is Commerce One's established but beaten-down partner, German software maker SAP (SAP:NYSE ADR - news), that could be the bigger winner in their relationship.
SAP was one of the world's leading sellers of enterprisewide resource planning software, complex stuff that helps big companies coordinate their operations. But a slow transition to Web-based products socked it to SAP's shares earlier this year, dropping the stock from more than 80 to nearly 30. Now, in part on the strength of its three-month relationship with Commerce One, SAP's shares are on a roll. By sucking up its pride and being willing to sell alongside the Pleasanton, Calif. upstart, SAP is clawing its way into a market it might have lost, the market for software that runs new electronic marketplaces for all sorts of industrial commodities.
"The Commerce One/SAP relationship will be more successful than people think," says Charles Phillips, software analyst with Morgan Stanley Dean Witter, who rates SAP's shares an outperform. Phillips notes that he has stuck with SAP's shares throughout their fall and that the company hasn't completed its turnaround. But he predicts that the partnership with Commerce One gives SAP credibility in the world that believes new is better than old. "Sometimes you can't sell the old" -- SAP's strength -- "until you are credible on the new stuff."
The best practitioner of being credible on painting a vision -- while selling the old stuff -- is Oracle (ORCL:Nasdaq - news), of course. Phillips refers to Oracle's craft as mastering the "PowerPoint-to-production gap. You must have it for market share."
Commerce One and SAP actually are making strides on market share in the online marketplace sector. In just three months the two have won contracts to supply industry consortia for the metals and electric utilities industries.
Brian Skiba, software analyst with Lehman Brothers, reports that he learned Thursday that the pair have won two additional contracts, which they plan to announce shortly. (Mindful that the Securities and Exchange Commission's new regulation on fair disclosure may not permit such information, Skiba quips: "That regulation hasn't taken effect yet. We're scrambling around meeting as many companies as we can." Commerce One, with which Skiba visited Thursday, confirmed that there are several partnership deals in the pipeline.)
Skiba also rates SAP an outperform, and he believes its real opportunities aren't so much the sales it will get from its Commerce One partnership, but the opportunities it will get to sell additional applications into the exchanges the team wins. Although at Thursday's close of 62 5/8, SAP's shares already are near Skiba's target price, he contends that the moment SAP demonstrates that it has gotten its act together again, the shares will soar to a more aggressive price-to-earnings ratio.
This seems like a time for going with what's worked over the long haul rather than the new, new thing. SAP might fit that bill.
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Ariba Downgraded on Valuation Concern
By Joe Bousquin
Staff Reporter
8/17/00 3:43 PM ET
Updated from 12:21 p.m. ET
For one analyst, the honeymoon with Ariba (ARBA: - news) is over.
Sands Brothers analyst Gavin Mlinar cut his rating on the business-to-business software provider Thursday to buy from strong buy, citing valuation concerns. Mlinar said the stock, which closed Wednesday at 137 7/16, is nearing his 12-month price target of 150 set in December.
For now, Mlinar is betting on the company's chief rival, Commerce One (CMRC:Nasdaq - news), whose stock could be poised to break out of its recent doldrums.
"In the short term, over the next four to five months, shares of Commerce One should outperform those of Ariba," Mlinar wrote in his report. He rates Commerce One a strong buy. Sands Brothers hasn't done underwriting for either company.
In July, when Ariba reported a 101% second-quarter revenue increase from the first quarter, Wall Street analysts nearly bloodied their fists pounding the table on the stock. Mlinar, apparently, has decided to give his paw a rest.
"After the earnings season and obviously as we go through the year, we are trying to figure out the valuations on these companies and where they stand," Mlinar said in an interview. "The valuation gap between Ariba and Commerce One has soared unbelievably recently."
A Big Difference
Ariba's market capitalization of $32.4 billion dwarfs Commerce One's $8 billion market cap. (TSC wrote a story recently looking at that valuation gap.)
Mlinar's downgrade, however, was doing nothing to change that. Ariba this afternoon was trading up 3 29/64, or 2.5% at 140 57/64. Commerce One, meanwhile, was up just 3/8, or 1%, at 49 1/16. Sands Brothers is a small Wall Street research house that lacks the influence with investors of big firms like Goldman Sachs (GS:NYSE - news) or Merrill Lynch (MER:NYSE - news).
But Mlinar contends he's not trying to make news by downgrading a hot stock.
"We can't move the market," Mlinar conceded. "If I was trying to grab attention, I would put it at a sell. But I am in no way changing my long-term outlook for Ariba."
Chris Vroom, an analyst with Credit Suisse First Boston who rates Ariba a buy as well, says valuation isn't something he focuses to determine his ratings.
"Downgrading a stock that's trading at 50 times forward revenue because you think it's expensive is not a particularly profound call," Vroom says. "The buyers of these stocks know they're expensive. But they recognize, historically, that you've always been rewarded for owning the leaders." His firm hasn't done underwriting for Ariba.
A Brighter Future for Commerce One?
Mlinar, meanwhile, happens to think that the near-term future is a bit rosier for Commerce One.
Taking advantage of its recent alliance with German enterprise software maker SAP (SAP:NYSE ADR - news), Commerce One announced earlier this week that it won a deal to build an online exchange for the mining and metals industry. Mlinar says Commerce One beat Ariba and its partner, i2 Technologies (ITWO:Nasdaq - news), in landing that deal. And Covisint, the online exchange that the Big Three automakers are setting up with Commerce One's help, is heading toward a launch by late September.
"Both of these companies are still winning customers, but Commerce One has some big events that are going to clear in the next few months," Mlinar said.
That, combined with the fact that more and more corporations are looking for the heavy-duty trading platforms that allow them to buy the raw materials they use to build things, instead of just secondary items like office supplies, also works to Commerce One's favor. Commerce One, with SAP, has been concentrating on this so-called "direct" materials market.
Pushing Paper
Ariba hasn't ignored direct materials, but it's made more of a name for itself by letting companies buy things like paper, pencils and office furniture online. Businesses have been quicker to adopt online purchasing in that area because it's less complex than, say, buying the different parts needed to build a car over the Internet. Ariba's stock price has surely benefited from that quicker adoption, but that could change in the near future.
"The competitive landscape has shifted a little bit," Mlinar says. "Commerce One and SAP have a viable product. I think you saw that with the mining and metals exchange. Ariba and i2 were trying to bring them in to their exchange, but it didn't happen, for whatever reason."
And despite all the accolades heaped on Ariba for its quarterly results by Wall Street analysts, the company's quarter wasn't perfect. It apparently experienced delays in shipping some software, according to a recent regulatory filing.
"We have experienced delays in the commencement of commercial shipments of our new [software] releases," the company said in its quarterly report, filed Monday.
Ariba couldn't immediately comment.
Vroom said delays are to be expected, especially as Ariba improves its technology.
"Ariba is continually improving the functionality of its solution," Vroom said. "Functionality is really an aspect that we monitor very carefully, but we're not concerned with any delay in the new version."
But it could be one more reason why it's not just hugs and kisses for Ariba anymore.
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