For an Encore, Commerce One Boosts Revenue Guidance
By Joe Bousquin
Senior Writer (TSC)
1/18/01 9:04 PM ET
Updated from 4:44 p.m. ET
Just like a teenager, Wall Street needs good guidance. And Commerce One (CMRC:Nasdaq - news) delivered Thursday, upping its revenue guidance for 2001 by about 12%.
After reporting higher-than-expected revenue and a lower-than-expected loss for the fourth quarter, the e-business software company said it expects revenue of $900 to $925 million in 2001, up from the $800 to $825 million it had previously forecast.
"You can't argue when a company raises guidance by $100 million," said David Garrity, an analyst at Dresdner Kleinwort Benson who rates Commerce One a buy. "Their numbers looked good." (His firm hasn't done underwriting for the company.)
Yet at the same time, it left earnings projections largely unchanged, saying it expected a first-quarter loss of 4 cents a share, in line with the First Call/Thomson Financial consensus estimate. For the full year, the company said it expected to breakeven, which is lower than the earnings per share of 2 cents analysts are expecting, though most attributed that discrepancy to Commerce One managing expectations.
Management said that it would reinvest the additional revenue in the business to expand market share.
The Numbers
For the fourth quarter, the Pleasanton, Calif.-based company reported a loss of $10.8 million, or 5 cents a share, excluding certain items, on revenue of $191.4 million. Analysts were expecting Commerce One to post a loss of 7 cents a share on revenue of $175.6 million, according to First Call. A year earlier, Commerce One posted a loss of 8 cents a share on revenue of $16.9 million. The company's closely watched sequential revenue gain, from its third to fourth quarter, was 70%.
Including charges, Commerce One had a net loss of $197.5 million, or 99 cents per share.
Commerce One's shares finished regular trading down 19 cents, or 0.9%, at $21.75. After hours though, the shares skyrocketed to $26.01 on Island.
On the company's conference call, executives took on an optimistic tone that's been rare for technology companies recently. They said they see no signs of the much-discussed slowdown in the market for public marketplaces on the Internet that Commerce One software powers. Covisint, the big Internet exchange for the auto industry, is an example.
They gave evidence of that with their numbers. The company added 89 new customers in the fourth quarter, bringing its total to 504. Some 30% of the business came from its partnership with German software giant SAP (SAP:NYSE ADR - news). And its revenue from fees levied on the goods traded in those exchanges jumped 50% to $15 million.
I'm Better Than You Are
The revenue number puts Commerce One, for the first time, ahead of its arch rival Ariba (ARBA:Nasdaq - news). Last week, Ariba reported revenue of $170.2 million. While Commerce One execs and investors will likely gloat over that fact, they should keep in mind that Ariba turned profitable during the fourth quarter, and that Commerce One's revenue got a boost from its acquisition of consulting firm AppNet, completed last September.
But Patrick Walravens, an analyst with Lehman Brothers who rates Commerce One a buy, heard a stark contrast between Commerce One's conference call and Ariba's.
"You would think these two companies were in totally different markets, like one was doing biotech and the other was doing optical networking, considering how different some of the messages were," said Walravens, whose firm hasn't done underwriting for either company.
Whereas Ariba said its days sales outstanding -- the amount of time it takes to get paid after making a sale -- went up due to international expansion, Commerce One said international expansion hadn't affected its DSOs. Ariba said it changed the way it recognizes revenue because customers had asked it to; Commerce One said it was sticking to the old way of recognizing revenue because its customers wanted that.
And Ariba said it upped its allowance for doubtful accounts, or sales that it thinks it might never get paid for, as a percentage of accounts receivable because of exposure to failing dot-coms. Commerce One said its allowance for doubtful accounts wasn't increasing.
The Dreaded Transition Message
"I came away from the Commerce One call today with the impression that their strategy is starting to pay off, whereas I came away from the Ariba call hearing, 'Well, we're in transition,'" Walravens said.
Mark Hoffman, Commerce One's CEO, wouldn't take the bait of saying he felt vindicated, but he was upbeat in an interview. "I think we've got a great vision and that we always have, and now we're executing on it. It feels great," Hoffman said.
Still, things weren't perfect. Commerce One's 70% sequential revenue growth marks a deceleration in that area. From the second to third quarter, Commerce One showed revenue growth of 80%. Its acquisition of AppNet, which closed on Sept. 14, skews the sequential comparison. Combining the revenue of Commerce One and AppNet for both quarters shows that revenue grew just 25%, actually just below Ariba's 26%.
The Gap
Still, analysts believe Commerce One's is heading in the right direction.
"They're closing the gap" with Ariba, said Jon Ekoniak, an analyst with U.S. Bancorp Piper Jaffray who rates Commerce One a strong buy. "There had been a divergence for a few quarters, but we're not seeing the slowing with Commerce One that we saw with Ariba." (His firm helped underwrite Commerce One's IPO in 1999.)
Hoffman, for his part acknowledged the company can't grow to the sky forever. But he was still happy with the growth so far.
"Well certainly, you can't expect 1,000% growth year over year," Hoffman said. "But if you look at our projections for 2001, we're going from $401 million [last year] to about $900 million or $925 million. You're basically still growing somewhat over 100%. With these big numbers, that's still terrific growth. I like it."
So did investors |
