VERT...a very bullish article
had a nice run with vert recently, now retracement with market forces at work. earnings to be tomorrow, but verify...very volatile trading
here's an article written by the street, and draw your own conclusions
VerticalNet Is Rising Through Sheer Chutzpah
By Suzanne Galante
Staff Reporter
10/19/99 6:27 PM ET
SAN FRANCISCO -- Like other companies fighting for a piece of the business-to-business e-commerce
market, VerticalNet (VERT:Nasdaq) is building a site to let companies reach customers, distributors and
suppliers on the Net. Unlike most others, VerticalNet is getting ahead through sheer chutzpah.
VerticalNet doesn't focus on one industry as GoFish does on the seafood industry, Chemdex
(CMDX:Nasdaq) on biotechnology and Comps.com (CDOT:Nasdaq) on commercial real estate. Instead, it
maintains nearly 50 Internet communities for industries ranging from fiber optics to food service, from
machine tools to medical design.
That broad base gives VerticalNet a decent shot at a big market share in the B2B market. VerticalNet is
"swimming in a bigger ocean," says Charlie Finnie, an analyst at Volpe Brown Whelan. "It's always better to
be addressing a big market." Volpe, which rates the stock a buy, helped underwrite VerticalNet's IPO.
Analysts say the B2B side of e-commerce will soon dwarf the e-commerce market for consumers. Business
transactions between companies on the Net will reach $1.3 trillion by 2003, or nearly 10 times the projected
figure for online transactions between consumers and businesses, according to Forrester Research.
"In the B2B space, people see huge revenue expansion and sequential growth," says Ross Moscatelli, a fund
analyst at Denver Investment Advisors, which holds shares of VerticalNet.
VerticalNet is pushing ahead for its piece of that rich pie. Its alliance with PaperExchange, announced on
Monday, suggests that rather than competing against smaller B2B sites, the company will be working with
industry-focused B2B sites, as consumer portals such as Yahoo! (YHOO:Nasdaq) have partnered with
more focused Web sites. VerticalNet and PaperExchange will jointly brand and market a site where
companies can buy and sell paper-making equipment.
VerticalNet is also getting respect from bigger players. In a deal that is likely to be announced in November
with Microsoft (MSFT:Nasdaq), VerticalNet will have better access to businesses that use Microsoft
software, according to a source at VerticalNet. That could open up big markets for VerticalNet.
And this week, VerticalNet is planning on relaunching its storefronts, the personalized sites that VerticalNet
hosts where vendors can hawk their wares on the Web. In addition to the current features that VerticalNet
offers on its industry communities -- chat, news, product reviews, resumes, and auctions -- the new
storefronts will offer the ability to buy and sell products online.
The storefronts will bring VerticalNet revenue in two ways. Companies will pay $15,000 for one of the new,
souped-up storefronts (roughly double the current cost). Eventually, once transactions are being made
through VerticalNet, the company will take a fee of all transactions -- ranging between 2% and 10%,
depending on the size and nature of the transaction, says Blair LaCorte, company senior vice president of
strategy and e-commerce.
The company expects only 5% of its 1999 revenue to come from e-commerce fees, with the rest coming
from setting up and maintaining storefronts and from sponsorships. In 2000, the company expects 15% to
20% of revenue to come from commerce, says company CFO Gene Godick. Eventually, he says,
VerticalNet hopes to generate 55% of its revenue from e-commerce and the rest from advertising, such as
sponsorships.
E-commerce "is where the bulk of revenue and earnings will have to come from," says Joseph Garner,
director of research at Emerald Research. "It's their brass ring." Garner, whose firm has no underwriting
relationship with VerticalNet, rates the stock speculative buy. Emerald's parent company, Emerald Asset
Management, holds shares of VerticalNet.
VerticalNet's stock has tumbled 17% in the past week, outpacing the 8% decline in the Nasdaq Composite
Index, partly as a result of a broader market decline and partly because VerticalNet had nearly doubled in
the previous two weeks. But those who believe in the stock are looking for more gains. "There's an
expectation of a good quarter, having rolled out some e-commerce," says Bob Fontana, an analyst at
Wachovia Securities, who rates the stock a long-term buy and whose firm hasn't done any underwriting for
the company.
E-commerce should make up 7% of VerticalNet's revenue in the third quarter, up from 5% in the second
quarter when the company brought in $3.6 million in revenue, says Fontana. Robertson Stephens analyst
Eric Upin expects that ratio to rise as high as 20% by the end of next year. Upin has a buy rating on the
stock. Robertson Stephens has no underwriting relationship with VerticalNet.
That kind of growth should give VerticalNet a formidable presence in the growing B2B space. "The game
here is what kind of bait do you put out to capture as much of that as possible?" Upin says. For VerticalNet,
putting bait everywhere at once seems to be working.
|
