Despite Its Depressed Stock, Commerce One Prepares for Blastoff
By Joe Bousquin
Staff Reporter
8/31/00 1:15 PM ET
URL: http://www.thestreet.com/tech/internet/1062174.html

Poor Commerce One (CMRC:Nasdaq). Despite its best efforts, including
Wednesday's 21% gain, it's still less than half the stock it used to be.
Trading at about $63 a share, it's well off its split-adjusted high of
$165.50, reached near the end of last year. Meanwhile, archrival Ariba (ARBA
:Nasdaq), at about $150 a share, has steadily been marching back toward its
all-time high of $183.31. It has jumped 47% since reporting its earnings on
July 12.
But as Wednesday's move may indicate, it may be Commerce One's turn. People
are beginning to pay attention to the strength of its partnership with
Germany's SAP (SAP:NYSE ADR). An exchange that Commerce One is helping build
for the big automakers is about to crank up. And perhaps more importantly,
some observers are beginning to see some value in Commerce One's focus on
so-called direct B2B, which involves buying and selling major supplies like
steel for cars instead of office supplies.
Issues Aplenty
Of course, there are still plenty of issues facing Commerce One, the same
issues that have held its stock down. For instance, it carries the stigma of
being a concept stock because no one knows whether those same big industry
exchanges actually will work. Its sluggish stock also puts it at a
disadvantage to chief competitor Ariba when it comes to making acquisitions
to grow.
But for now, there are signs that sentiment is shifting in Commerce One's
favor.
Gavin Mlinar, an analyst at Sands Brothers, sees three short-term positives
for Commerce One. (He's the analyst who had the gall to downgrade Ariba on
valuation concerns. His firm hasn't done underwriting for either company.)
Mlinar says the word on Wall Street is that Commerce One, along with its new
best friend SAP, will announce two new online exchanges in the coming weeks.
(TSC's Adam Lashinsky recently wrote a column about the partnership between
Commerce One and SAP.) While those sorts of announcements no longer guarantee
a moon shot for a company's stock, they could show that the partnership is
working. Two weeks ago, they announced new exchanges in the mining and energy
industries.
Commerce One declined to comment about the possible exchanges.
Blastoff
On top of that, Covisint, the mega-exchange that Commerce One is helping
build for the auto industry, is slated to begin operations at the end of
September, which could give the first indication of whether these exchanges
actually work.
Then there's the coming completion of Commerce One's acquisition of
consulting firm AppNet (APNT:Nasdaq). Investors initially reacted negatively
to that deal. But since then, it's become clear that there aren't enough
consultants in B2B to go around, so the deal will give Commerce One its own
army of geeks to plug in its software.
"There's no doubt that investors are in a good position with" either Commerce
One or Ariba, Mlinar says. "But it's a matter now of who has the near-term
operational catalysts. I think there, it's Commerce One."
Beyond those short-term catalysts, others say Commerce One has been
positioning itself smartly for the long term, especially with its focus on
the direct business.
"We think the big play here is in direct," says John Biestman, director of
investor relations for Commerce One. "While we will continue to service the
indirect procurement side, we are hitting at the heart of where we think B2B
will be, which is direct goods. We want to be the best-of-breed player
there."
Ariba has also made headway there, but its focus has primarily been on the
indirect business, in part because it's easier to get companies to buy things
like paper and pencils online than material that actually goes into the
manufacturing process. But with companies becoming more comfortable about
buying and selling online, they're now looking to the direct business as a
way to save more money. With big customers like GM (GM:NYSE) and Boeing (BA
:NYSE) and its partnership with SAP, Commerce One could be ready to exploit
this growing comfort.
Direct vs. Indirect
"What's happening is the marketplace is beginning to understand the
difference between direct and indirect," says Ben Smith, a consultant for
A.T. Kearney. (His firm hasn't done consulting for Commerce One.) "Picking a
[software] solution for one doesn't necessarily include the other."
Smith points back to Commerce One's partnership with SAP. For years, the
German software maker has been concentrating on the complex kind of software
that helps businesses build things. If a firm can successfully plug that in
to software designed to buy the building blocks -- like Commerce One's
software -- it could have a winning combination.
"The SAP partnership legitimizes Commerce One in the direct materials space,"
Smith says. "It gives them much more depth from the product standpoint than
they can possibly build on their own."
Of course, Ariba isn't letting this business just slide by. It's working with
partners i2 Technologies (ITWO:Nasdaq) and IBM(IBM:Nasdaq).
But this is Commerce One's focus. So if companies do begin to use direct B2B,
Commerce One will be ready and waiting.