Is B2B Still Alive?
by Chris Connor
Senior Technology Analyst, WallStreetCity.com
Apr 27 2001
Former Mania Turned Bust
There was a time when Wall Street was convinced that business-to-business (B2B) e-commerce would tower over business-to-consumer (B2C) e-commerce. This euphoria resulted in the stocks of B2B leaders Ariba {ARBA}, Commerce One {CMRC}, Internet Capital Group {ICGE}, and VerticalNet {VERT} soaring to unbelievable heights. Well, reality turned out a little different than Wall Street's predictions due to the fact that online marketplaces, exchanges where manufacturers and suppliers meet, are nowhere near as widespread or efficient as originally expected. The fact is that these online exchanges are so complex that they hard to implement. For instance, Nike recently claimed that a major reason for its earnings shortfall was due to it not being able to implement a system from I2 Technologies {ITWO} in time. Thus, what was once a red-hot industry is now an industry that has a lot of question marks about it going forward.
Where to From Here?
Due to the fact that B2B is not what everybody expected it to be, a giant cloud of uncertainty hangs over the future of the industry. Will B2B just morph into enterprise software or will it be classified as a new buzzword like collaborative commerce? Despite the uncertainty of the industry, the future of the companies within the B2B industry is significantly more predictable. For example, several of the larger B2B companies like Ariba and Commerce One will probably not be successful on their own, but stand a good chance of being swallowed up by major software behemoths like Oracle {ORCL}, IBM {IBM}, and SAP {SAP} (which already has a relationship with Commerce One). On the flip side, the plethora of lower tier B2B companies will simply go out of business like their B2C counterparts. Basically, too many companies wanted a slice of the B2B pie and they are now paying for it. To illustrate how close some companies are to extinction, there are at least 20 money-losing B2B stocks littered across the Nasdaq, AMEX, Nasdaq Small Cap, and OTC Bulletin Board that have market values below $50 million (some below $10 million).
Fallen Angels and Me Toos
Below is a list of stocks that focus primarily on the B2B industry. This list is chalk full of companies that have either fell from grand heights or have sprouted up from essentially nothing in hopes to strike it rich in an industry that used to be a virtual gold mine on Wall Street. The key measurements that used to analyze the valuations of the companies below will be the price-to-sales (P/S) ratio (the P/S ratio of the S&P 500 is currently at 4.16) and each company's five year projected earnings growth rate. Although the future of B2B is highly uncertain to say the least, it is interesting to see how high analysts have some of these five year projected growth rates. If those projected growth rates are even close to how fast these companies will actually grow over the next five years, many of them appear to be steals at that their currently low (P/S) ratios.
Company Ticker Market Value (millions) Price to Sales 5-Year Projected Growth Rate
Ariba ARBA $1,640 3.34 50%
Commerce One CMRC $1,810 3.03 55%
FreeMarkets FMKT $362.5 3.44 72.5%
PurchasePro.com PPRO $432.5 6.78 50%
VerticalNet VERT $192.9 1.55 50%
I2 Technologies ITWO $6,740 4.99 41%
webMethods WEBM $1,293 9.06 60%
Agile Software AGIL $850.0 11.56 45%
Apropos Technology APRS $46 1.34 40%
BackWeb BWEB $61.2 1.65 52.5%
Aspen Technology AZPN $541.3 1.85 22.5%
Internet Capital ICGE $560.3 13.45 NA
Clarus CLRS $93.8 2.82 52.5%
Concur Technologies CNQR $21.7 0.6 80%
eMerge Interactive EMRG $120.4 0.13 50%
eSpeed ESPD $1,220 10.09 30%
eXcelon EXLN $44.7 0.72 50%
Manhatten Assoc. MANH $706.4 5.46 30%
Manugistics MANU $1.98 6.84 40%
MRO Software MROI $275.3 1.38 25%
Neoforma.com NEOF $182.8 7.89 50.1%
Onvia.com ONVI $72.3 0.51 100%
Optio Software OPTO $13.7 0.37 40%
ePlus PLUS $86.3 0.30 160%
Penton Media PME $590.6 1.36 20%
Parametric Tech PMTC $3,054 3.30 15%
Switchboard SWBD $90.3 3.82 45%
Ventro VNTR $36 NA 0.2%
ViryaNet VRYA $23 0.32 30%
FairMarket FAIM
$37.4 2.72 NA
Appearances Are Illusions
Based purely on projected growth and price-to-sales, several B2B stocks look extremely attractive; however, the valuations appear to be so extreme in some cases like Concur Technologies (P/S=.6, Projected Growth=80% ), eMerge Interactive (P/S=.13, Projected Growth=50% ), eXcelon (P/S=.72, Projected Growth=50% ), Onvia.com (P/S=.51, Projected Growth=100%), and ePlus (P/S=.30, Projected Growth=160% ) that investors should not take them at face value. This is particularly the case in the current economic environment, were downward earnings revisions are becoming rampant. Investors who are looking to for exposure to the B2B space would be wise to research potential candidates closely and be ware that a low valuation does not necessarily mean a good value. |
