06/28 15:03 Internet business stocks take center stage
By Dick Satran
SAN FRANCISCO, June 28 (Reuters) - Suddenly, the Internet is all business.
After a long period in which well-known consumer brands like Yahoo! Inc. <YHOO.O>, Amazon.com Inc. <AMZN.O> and America Online Inc <AOL.N> were star performers, the stocks of companies that help others set up online shops are taking center stage.
Analysts have long predicted that the so-called toolmakers -- companies that work behind the scenes to build the infrastructure for doing business on the Internet -- would have their day.
But for a long time investors didn't want to hear about it, especially with the first wave of name-brand Internet stocks performing so stunningly. Now, with the best-known Internet stocks having fallen 30 percent to 50 percent since April, the less flashy business-to-business providers have gotten a fresh look.
Leading consumer sites, meanwhile, have been hit by worries that marketing costs are mounting in a hypercompetitive environment in which many new players, fueled by IPO cash, are fighting a massive branding war.
The new wave can get the benefits of all that frenzied activity by selling to the companies competing on the Web, without having to pay the marketing costs.
"This second wave of companies is all about mission-critical applications for people doing e-commerce," said Jack Staff, economist at Zona Research.
Ariba Inc.<ARBA.O>., which tripled in value on its first day of trading Thursday, is typical of the very unglamorous wave of new businesses. It helps companies procure supplies over the Internet. It might not be a sexy Web site, but it's fitting the current vogue of sites with more tangible revenue streams than ad banners and a share of e-commerce revenues.
"For a lot of institutions that have been uncomfortable with the (high) valuations of Internet companies, the business-to-business model is more acceptable," said Andrea Williams, analyst with E-Offering, the online investment bank aligned with Goldman Sachs and E-Trade Group. "These stocks haven't seen the runups of consumer stocks."
Apart from Ariba, CareInsite<CARI.O>, which handles medical supplies over the Internet, has more than doubled since its IPO June 16. Persistence Software Inc. <PRSW.O>, CyberSource Inc <CYBS.O>, and Software.com <SWCM..O>, are other business-to-business players completing strong initial offerings during the week.
Also soaring in initial offerings are companies that provide "bandwidth," the high speed Internet services that help e-commerce sites win sales. One such site, Juniper Networks <JPNR.O> had its initial offering price hiked twice due to strong investor demand, and it still doubled in value when it began trading Friday.
"First wave" Web sites, meanwhile, are having a harder time. Online magazine, Salon.com Inc. <SALN.O> limped out of the starting gate with a $10.50 per share initial stock price Tuesday then eased to $10 in the week, even though it's one of the best known and best regarded content sites on the Internet.
The trend toward more business-like sites isn't just limited to initial stock offers, but also appears to be shifting to the established technology companies whose business is helped by the growth of the Web.
Oracle Corp. <ORCL.O>, which had been struggling to get the message out that it's getting a huge amount of Internet business, finally is getting a response. Even though its database is used on nine of the top 10 e-commerce sites, it has been largely passed over. But it's stock now is up 50 percent from the year's low.
Cisco Systems Inc.<CSCO.O> ,whose routers are the building blocks of the Internet, recently touched an all-time high and is trading at 100 times earnings. Similarly, International Business Machines Corp. <IBM.N>, Hewlett Packard Co. <HWP.N> and Microsoft Corp. <MSFT.O> have been touching their best levels ever, after spending much of the year trying to convince investors that they, too, are in the e-commerce business.
Underlying the optimism are increasing signs that e-commerce is gaining momentum. A U.S. Commerce Department report Tuesday said online sales had gone as high as $15 billion a year in 1998 -- reaching that level much faster than expected. Deloitte Consulting, in a briefing this week, forecast that e-commerce revenue would climb to $1.1 trillion by the year 2002.
"The business to business sector is poised for rapid growth in the near term," said E-Offerings' Williams.
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