B2B eCommerce Update - Eric Upin - (Robbie Stevens)
B2B INVESTORS FLESH OUT THE FUTURE
What's moving B2B stocks of late? More than just fourth-quarter
financial results. With investors skittish about near-term
deceleration in the economy, including software spending, factors
influencing companies' 2001 outlook are coming into greater
prominence. Although leading B2B companies exceeded Street
estimates in their recent earnings reports, the market has had
varying reactions to the results from Ariba (ARBA $38-1/4),
Commerce One (CMRC $30-1/2), i2 (ITWO $56-1/16) and FreeMarkets
(FMKT $22-3/16).
Ariba reported $170.2 million in revenue and $0.05 operating EPS,
better than our estimates of $162 million and $0.02. In the
previous quarter, however, the upside margins were $34.9 million
and $0.05. Furthermore, in another departure from previous
quarters, management offered conservative guidance for fiscal
2001. While we raised our fiscal 2001 revenue estimate by $227
million to $775 million and operating EPS $0.26 to $0.20 after
the September quarter, we raised fiscal 2001 revenue estimates
just slightly to $783 million and adjusted operating EPS to
$0.25. Since Ariba reported on January 11, the stock has dropped.
In contrast, Commerce One is up significantly from its January 18
earnings release, against the backdrop of a 1% rise in the Nasdaq
Composite. The company reported much better than expected Q4
results, beating our revenue estimate by $15 million and topping
our operating EPS estimate of ($0.07) by $0.02 (when deducting
interest and taxes from our estimate). We raised our fiscal 2001
revenue forecast aggressively, to $890 million from $820 million,
because Commerce One appears to be benefiting from very favorable
trends in its revenue mix. About 30% was generated by its
partnership with SAP, bringing into view the huge opportunity
represented by SAP's European installed base. Additionally,
network revenue increased 50% sequentially. This recurring
revenue stream is expected to contribute 40% of long-term revenue
and adds visibility to the picture for the year ahead.
FreeMarkets reported total revenue of $34.5 million and operating
EPS of ($0.27), conducting $3.45 billion in auction volume. The
quarter was highlighted by revenue and EPS upside, gross margin
expansion, higher customer ROI and customer wins, including
renewed long-term contracts with United Technologies, Emerson
Electric and the state of Pennsylvania. However,
lower-than-expected auction volume, which came in 15% to 25%
below the $4 billion to $4.5 billion estimate range due to
greater customer savings and fewer large transactions in the mix,
coupled with limited upward revisions to 2001 numbers, caused the
stock to drop the day after the release.
As expected after a positive prerelease, i2 Technologies exceeded
our revenue estimate by $33 million and beat our operating EPS
estimate of $0.07 by $0.02. The quarter was highlighted by
substantial top-line growth, greater operating leverage, an
uptick in average selling prices to $1.9 million, and increased
penetration of the installed base, with 62% of license revenue
coming from existing customers. Although we believe i2's limited
upward revisions and fairly measured guidance reflected the
company's familiar conservatism, the stock fell the day after the
earnings report. It has rebounded since then, suggesting to us
that investors' attention has returned to the company's excellent
positioning and considerable long-term opportunity. It remains
our favorite stock.
In coming quarters, we expect investors to continue to comb the
data generated by B2B companies for indicators of future health,
broadening their view beyond top- and bottom-line surprises to
gain greater visibility. Yet amid the volatility driven by the
uncertain macro-economy of 2001, investors should keep the
long-term opportunity in mind. In our view, B2B represents a
fundamental change in the way companies do business that will
remain a priority for enterprises in the coming years, creating a
market opportunity several orders of magnitude larger than the
$15-billion ERP market. |
