Leading B2Bs Beat Earnings
But their stocks fail to get a positive pop
Alexander Kubes
Associate Analyst
October 24, 2000
Leaders in the B2B e-commerce sector are blowing past quarterly earnings
estimates. PurchasePro (PPRO) beat its third quarter estimates by 10 cents a
share, positing a third quarter loss of 7 cents. I2 Technologies (ITWO) topped its
estimates by 2 cents, earning 12 cents a share in its third quarter. Ariba (ARBA)
surged past its forecasts, breaking even instead of losing 5 cents a share as
expected. And finally, Commerce One (CMRC) came in 3 cents ahead of forecasts,
reporting a narrower-than-expected loss of 9 cents a share.
Despite these impressive results, the B2B sector has failed to take off as it did
during the second quarter following solid Q2 results. Although B2B stock prices
were far lower in June/July due to the NASDAQ’s correction in April, the lack of
upward momentum in the B2B sector is the direct result of the markets’ current
weakness. However, results reported by the sector’s leaders should offer an
indication that the revenue slowdown in the tech sector is not impacting the B2B
e-commerce space.
Tech Market Weakness
Several factors have contributed to market weakness. Profit warnings from some of
the top tech companies (Lucent Technologies, Intel, Apple) have sparked concerns
over a revenue slowdown in the tech sector. Secondly, the crisis in the Middle East
further spooked investors. Finally, inflationary fears ignited by rising oil and
consumer prices coupled with a slowing economy impacted interest rate sensitive
issues. As a result, investors have been rotating their money out of high tech
stocks (notably the Internet sector) into more defensive issues.
Given that business-to-business e-commerce is an emerging sector, whose
fundamentals are still very shaky, B2B stocks are the first to get sold in a down tech
market, regardless of the sector’s actual health.
Burgeoning Demand
Although revenue growth is effectively slowing down in certain tech areas of the
markets, this is not the case for B2B e-commerce. The U.S. economy’s
deceleration is actually increasing demand for B2B applications.
Companies that are facing slower revenue growth are looking for ways to minimize
its impact on earnings. Given the benefits that can ensue from implementing B2B
e-commerce products and services – cutting operating costs by moving the
procurement process online – corporations are rapidly embracing B2B e-commerce
as an effective tool to offset lower revenue. Thus, demand, which is already growing
at a brisk pace, is expected to accelerate over the next few years.
A Look At The Numbers
During the third quarter, PurchasePro grew its revenue by 82% over the second
quarter, while Ariba, i2 Technologies and Commerce One boosted sales by 67%,
32% and 60% respectively.
According to just about every research firm covering the B2B e-commerce sector,
B2B transactions are expected to grow exponentially over the next five years. By
2004, the average estimate forecasts the Industry to hit $5.4 trillion. Thus, a revenue
slowdown seems highly improbable if these numbers are true.
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