Wedbush Morgan Initiates VerticalNet At Hold, $50 Target (VERT)
(NewsTraders.com)--VerticalNet (VERT) was stuck at "hold" in new coverage today from Wedbush Morgan analyst George Santana, who held up valuation as the basis for his mediocre rating for the business-to-business player.
Santana, who set a $50 price goal for VerticalNet, believes the firm is carving out a unique space in B2B e-commerce with its focus on supplier-sponsored communities, in contrast to other industry leaders, such as Commerce One (CMRC) and Ariba (ARBA), which focus on the buyer side.
In addition, the analyst commented that VerticalNet's recent agreement with Microsoft (MSFT) represents the company's "salvation" in the near- to immediate-term, in that it provides $220 million of net revenues for VerticalNet and bridges the company, by his estimates, to positive cash flow.
Despite such praise, Santana said other analysts' B2B e-commerce-based valuations of VerticalNet "make no sense" since 50% of VerticalNet's net revenue in 2000 will come from a market making business, or NECX, that is "overwhelmingly offline and traditionally low margin."
The analyst added that although VerticalNet intends to migrate its NECX business to the Web, such a transition may take years, and in the meantime, he does not feel VerticalNet deserves a B2B e-commerce multiple.
Arguing from another perspective, Santana commented that VerticalNet's practice of using barter and "barter-like" advertising arrangements inflates revenue but does not contribute to operating profits.
Focusing further on revenues, the analyst raised concerns about VerticalNet's top-line sources, since, in his view, the company's high base of advertising and sponsorship revenues is less reliable than a large volume of license fees and growing transaction fees, given his perspective that the switching costs for advertisers remains low.
From an operational perspective, Santana suspects that VerticalNet's number of unique visitors "may be rather light" based on what he sees as a lack of chat activity and active discussion on the company's sites.
In recent market activity, shares of VerticalNet were higher by $0.47 at $54.34. |
