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To: Wally Mastroly who wrote (13150)	4/13/2000 8:55:00 AM
From: Jeffrey D	Respond to of 15132

The B2B sector, from another thread. Jeff >> To: Dale Baker who started this subject From: Dale Baker Thursday, Apr 13, 2000 4:18 AM ET Reply # of 17606 Thoughts from a Net analyst: internet insight! By Randy Chin VP Investment Research /e:harmon zero gravity/ (note: Randy was on the team that took Ariba and TIBCO public among many Internet ecommerce companies. I asked him to share his wisdom on the B2B sector especially which has taken a beating. Enjoy his insights! - Steve Harmon) 2000.04.13 Smokey The Bear On Conflagrations Nature can be a powerful, fickle, sometimes brutal but strangely efficient force. Take forest fires for example. Despite the most advanced technologies, techniques and strategies humans can offer, given the wrong conditions forest fires can rage uncontrolled for days if not weeks. But eventually, the forces of nature inevitably shift and the fire runs its course. The effects can be double edged. While acre after acre may be blackened and ravaged, the positive underlying effect is that it clears the way for new growth that over time can be a source of renewal and opportunity. The same is true for the stock market. At least once, often twice a year, it's typical for the stock market to undergo a sizeable, sometimes painful correction. Recent examples include the summer/fall of 1998 (33% decline in the NASDAQ from peak to trough) and the summer of 1999 (a 15% decline in the NASDAQ). The current downdraft has negatively impacted the NASDAQ Composite by 27% from the March peak through last night. This sharp sell-off came on the heels of a 95% run up in the NASDAQ from October through March. Recent darlings, such as the B2B e-commerce and broadband/IP equipment sectors, have been particularly hard hit. Why the sudden, sharp change in sentiment, especially in the B2B space? If we had to boil it down to the essentials, we'd pinpoint the following factors: --Concerns that valuations were becoming wildly excessive --Questions about pricing power and the ability of vendors to generate transaction-based fees --Realization that the Old Economy companies would fight back vigorously with their own Net initiatives --Fears that some B2B leaders, such as i2 Technologies, E.piphany and Peregrine Systems among others, had overpaid for recent acquisitions --Stock charts that had begun to break down and look toppy Just as a forest fire sets the stage for consolidation followed by renewed growth, we think the current correction is a necessary evil that will enable a more clear distinction between winners and losers. Until recently, almost every stock evenly remotely connected to the Internet and B2B was able to buy a one-way ticket higher (and higher). The recent return to investor sobriety seems to have broken the back of reckless speculation. As the table below indicates the following sample of ten leading B2B names has surrendered close to $181 billion in market cap over the last several weeks. please see e-harmon.com for table after 930am pacific time Despite this hemorrhaging we believe the B2B sector is far from through as a long-term investment trend. A good example of a bellwether name in the B2B space is Ariba (which by the way reported much stronger than expected financial results last night). Few companies typify both the promise and the potential upside of the B2B movement than Ariba. It's hard to believe but Ariba's stock has only been around for ten months. But during this short tenure the Company has ramped from an annualized revenue run rate of $40M to $160M. During this period, it has remained cash flow positive, unlike most of its Internet brethren. Its customer base has expanded from over 30 companies to over 200 blue-chip accounts (including more than 20 of the Fortune 100). Although the stock has endured a sizeable haircut in recent weeks, long-term shareholders have still faired very well. In fact, Ariba's stock still trades more than 12-fold higher than its split adjusted IPO price of $5.75. We believe the core fundamentals in the B2B sector are still in the first or second inning of a long, exciting ballgame. While valuations spiraled to unsustainable heights in the 4Q and 1Q, we believe these excesses are systematically being wrung out of the markets. When the blood letting ends, we believe a select group of B2B players are poised to move from the pack and become breakaway leaders. As a result, we suspect the next wave upward in the Internet sector will be more discretionary.