Ariba's Ugly Warning Is Bad News for the Economy
By Jim Seymour
Special to TheStreet.com
4/3/01 5:10 PM ET
Ariba (ARBA:Nasdaq - news - boards)? Remember them?
Look, this is the third time around on this column. I wrote one version late Monday night to run early Tuesday. Then I tore it up early and
rewrote it. Then I tore that up and did it again. I know, I know -- it would be better if this one had appeared early Tuesday. But both the
importance attached to Ariba's warning Monday afternoon and the chaos of this awful Tuesday in the market have forced me to keep
rewriting.
Let me put it simply: I believe you simply cannot overstate the importance, the utter badness, of Ariba's warning. And the importance of
this warning, its implications, not just for Ariba's future, but to the prospects for a recovery in B2B stocks, in supply-chain-management
stocks.
How bad was it? Instead of a nickel in earnings for the second quarter, a loss of 20 cents. Quarterly revenue of around $90 million, half
what was forecast. Revenue down 47% from the first quarter. A third of the work force, or 700 people, cut loose. A huge $50 to $75
million more in write-offs from real estate commitments no longer needed. And its deal to buy Agile (AGIL:Nasdaq - news - boards)
ended -- a deal even Ariba executives had been saying was absolutely critical to Ariba's future.
It could get worse? How?
Just listen to the words of Ariba's chief executive officer, Keith Krach, Monday afternoon: "The exchange business ... has seen a dramatic
falloff, and we don't think there'll be a recovery in marketplace revenue."
Read that again. Not "very little visibility." Not "no direction." Not "no recovery for two quarters." But "we don't think there'll be a
recovery..."
So Krach is some yahoo cowboy-manager, huh, another dot-commer who doesn't know a balance sheet from a balance beam? No way:
He is one of the best executives in e-commerce, a fine manager and a great leader. He doesn't shoot from the hip. He doesn't scare the
troops, or the Street, with crazy overstatements.
"We don't think there'll be a recovery..."
B2B has seemed to be surviving pretty well, everything considered in this crazy market. Unlike B2C, where the Cs just didn't report for
work, B2B was an obvious and acknowledged contributor to the bottom line of many companies. Market exchanges really have made
buying and selling smoother and cheaper -- that much sought-after "friction-free commerce" -- for a lot of companies.
But now the head of one of the two leaders in the business, along with Commerce One (CMRC:Nasdaq - news - boards), believes that
market has at the very best flattened. "No recovery."
And I think he's right. At least for the rest of this year, and given the mood of the market this ugly Tuesday, maybe in 2002 as well.
Because American business is paralyzed with fear. Ariba COO Larry Mueller said Monday night that the problem was that Ariba couldn't
get prospective customers to move, to sign on the dotted line. So-called "six-figure software companies" like Ariba book their big money
right at the end of each quarter, as their salespeople push the deals they've been working on to completion.
But Ariba couldn't close 'em this time.
Stasis. That's what we're in, and the problem reaches far wider that Wall Street. It isn't just investors who are frozen, it's Main Street,
USA.
I spent a good part of Tuesday morning calling companies I know well, many of them longtime consulting clients, where the people know
me, and I know them ... and they'll speak truthfully, if off the record: "Everything has ground to a halt here." "We're stuck on high center."
"We're not spending a dime this quarter." "We're scared -- just look around out there."
Heard that same theme over and over, in different words but in the same painful voice. Fear.
No wonder Ariba couldn't move its deals to contracts. No wonder Ariba traded down under $5 Tuesday. No wonder Commerce One
(CMRC:Nasdaq - news - boards) got hit almost as badly.
I said on the RealMoney.com Columnist Conversation Monday night that I believe Ariba has reached the end of the line as an independent
company -- Dead Man Walking time. It's going to be acquired, or it is going to go away. Permanently. There just isn't enough cash in
anyone's bank -- and Ariba has about $400 million -- to keep going in the face of this kind of unwillingness to act.
Ariba is actually a pretty nice purchase. A big company with substantial revenue could swallow it easily, turn it into a software and services
division, hold on, watch it grow in a few years, then spin it back out.
But I don't believe Ariba's going to be Ariba much longer.
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There were other companies in Monday night's bloodbath of which I could say pretty much the same. Inktomi (INKT:Nasdaq - news -
boards) closing Tuesday at $2.79 after a 52-week high of $191. Or e.piphany (EPNY:Nasdaq - news - boards) -- a solid company with
great management, great products and a rich market -- where the customers failed, not the company. They were afraid to say yes.
Consider the remarks Monday night of Epiphany CEO Roger Siboni: "The shortfall is primarily due to longer sales cycles caused by the
continuing economic uncertainty in North American markets."
Sounds like Ariba's Krach wrote that for him, doesn't it?
But the most painful -- and far-reaching -- warning Monday afternoon, I'm convinced, was the one from Ariba.
Badness. And more to come, I fear, as we enter this dark earnings season |
