Internet
B2Bs Rose Hard and Fell Hard Once Before. Time for Act Two?
By Joe Bousquin
Staff Reporter
8/30/00 9:22 PM ET
URL: http://www.thestreet.com/tech/internet/1060952.html

Beware the booming B2Bs.
Several business-to-business stocks rocketed upward Wednesday on little news
as the Nasdaq waffled for most of the day. While some market watchers said
investors were betting on a strong quarter, many analysts couldn't explain
increases of 15% or more in stocks like Commerce One (CMRC:Nasdaq), Ventro
(VNTR:Nasdaq), PurchasePro.com (PPRO:Nasdaq) and Clarus (CLRS:Nasdaq).

Big Day for B2B
Several of the stocks rallied Wednesday on little news.

"You've got me," says Bill Epifanio, B2B analyst at J.P. Morgan. "They're all
going nuts on nothing."
Since earnings season ended, sentiment about B2B stocks has shifted back to
the rose-colored variety in this sector. While this change is based on the
concrete results that companies like Ariba (ARBA:Nasdaq), i2 Technologies
(ITWO:Nasdaq) and FreeMarkets (FMKT:Nasdaq) delivered, investors also may
want to pause and reflect. After all, it was only this past spring that
investors grabbed any B2B stock within reach on hopes of unlimited growth,
only to have them come crashing back down.
Focus
"Before, we were buying stocks on promises of what they could be, and that's
when it got out of hand," says Eric Upin, B2B analyst at Robertson Stephens.
"Now, you've got to focus on which stocks are delivering lots of growth and
revenue."
Upin looks to Ariba and i2 Technologies as examples of companies that are
actually delivering. (He rates both a buy, and his firm hasn't done
underwriting for either.)
Ariba recorded $153 million in deferred revenue in the most recent quarter.
Deferred revenue is money that a company collects before it actually delivers
a product or does its job. It's a good signal, because if people are willing
to pay before a company gives them something in return, it means there's
strong demand. Ariba was up $8, or 6%, to $152.50.
i2 is considered a strong player in supply-chain management software, and it
has a partnership with Ariba and IBM (IBM:NYSE). It climbed $11.13, or 7%, to
$168.75.
Reaching?
But in a possible indication that investors may have just been reaching for
any B2B stock, Ventro finished up $2.69, or 21%, at $15.50 on no news. This
is the same company that upset analysts and investors with a poor
second-quarter performance, with just $1.8 million in net revenue. "Investors
need to be more careful regarding which of the B2Bs they select," adds David
Hilal, a B2B analyst at Friedman Billings Ramsey. "When B2B was at its
highest, any company that used that acronym seemed to perform well. Now, you
have to dig deeper and figure out which ones are the real players in this new
economy."
Meanwhile, one of the most interesting subplots Wednesday involved Commerce
One. On no real news -- there was talk about an already announced deal --
Commerce One shot up $10.88, or 21%, to $63.25.
There's been a lot of chatter about the company lately. Gossips love to talk
about how its partnership with German software maker SAP (SAP:NYSE ADR) might
lead to a merger. Then there's the persistent rumor that the two companies
will soon announce two more Internet exchanges for major industry groups. On
top of that, Covisint, the big auto exchange that Commerce One is helping
build, is setting up to launch near the end of September.
Lump that in with the fact that Commerce One's stock has slouched in Ariba's
shadow lately, add a dash of Wednesday's positive sector sentiment, and
you've got the most active stock on the Nasdaq Wednesday. It traded more than
27 million shares, whereas it usually trades 6.6 million.
Ready to Bolt
Gavin Mlinar, an analyst at Sands Brothers, says the stock has been setting
up for a move for a while.
"September is a big month for them; they have so much on the table for a
potential lift," Mlinar says. He's been crowing about Commerce One since
mid-August, when he said the company was starting to look more attractive
than Ariba on a valuation basis.
And overall, Mlinar contends that conditions were right for a B2B run.
"The emphasis and momentum has clearly been building lately," he says. "There
wasn't much, on a broad basis, since April, and now we're seeing a total
rotation into these names."
Which is just what some observers are cautioning against.