Ariba Hits Some Speed Bumps on the Fast-Growth Highway
By Joe Bousquin
Staff Reporter
9/7/00 3:21 PM ET
URL: http://www.thestreet.com/tech/internet/1070107.html

SAN FRANCISCO -- In a sign that the business-to-business software game is
tough even when you're on top, Ariba (ARBA:Nasdaq) has been running into
problems this summer, both at home and abroad.
Ariba told analysts and investors at a private breakout session here Tuesday
at the Robertson Stephens Internet Conference that its business in Europe
this summer has been "soft," according to Eric Upin, an analyst at the firm.
And at home, analysts are starting to talk about problems the company has had
integrating its Tradex software into its own and customers' systems.
An Ariba spokeswoman didn't immediately return a call seeking a comment.
The challenges Ariba is facing illustrate how difficult it can be to stay
ahead of the game in an emerging industry, even for one of its most
aggressive leaders. And they come at a time when its main competitor,
Commerce One (CMRC:Nasdaq), is gaining momentum in key markets -- including
Europe -- through its partnership with German software maker SAP (SAP:NYSE
ADR).
Upin, who rates Ariba a buy and lists the company as one of his top B2B
picks, says the new concerns have to be taken in context. (His firm hasn't
performed underwriting for the company.)
"Ariba's just getting ramped up in Europe, and Europe's slow during the
summer. It's a tiny part of their business," Upin said. "But there was
concern because Ariba was saying that business was soft [in Europe] in
August."
That concern has been reflected in Ariba's stock, which is trading just under
$162, off from its Sept. 1 close of $166.25. It fell 6.1% Wednesday after the
breakout session, though it's up about 3% Thursday. With the stock trading at
more than 70 times next year's projected sales, it's priced to perfection.
Ariba's softness in Europe comes at a time when Commerce One has been making
strides there. Its partnership with SAP has resulted in six new customers so
far. Commerce One also announced a joint marketing and sales alliance with
Intershop, another German software maker, on Thursday.
At home, Ariba has been encountering problems in integrating its Tradex
software, which enables users to participate in auctions over the Internet,
into its customers' systems, as well as into its own software platform.
Ian Toll, an analyst at Credit Suisse First Boston, says those problems
shouldn't be viewed as too much of an impediment for Ariba. But they do
illustrate the complexities of building software that is designed to do
everything from manage back-office accounting systems to trade real-time with
outside partners.
"Implementation has certainly been a concern with Tradex," Toll said.
"Certain Tradex customers have highlighted what appear to be longer time
lines than they had hoped for. But I think that's true across competing
vendors as well." (Toll rates Ariba a buy, and his firm hasn't done
underwriting for the company.)
While Ariba issued a news release Thursday crowing about how drugstore
operator CVS (CVS:NYSE) recently went live on its Ariba Buyer software in
just 60 days, observers say that getting Tradex installed and working is
taking closer to six months. In the hard-charging world of B2B, that's an
eternity.
Ariba completed its acquisition of Tradex in March. Ariba has hailed the
acquisition as one that gives it best-of-breed auction capability, which it
would integrate into its own suite of software products. But competitors,
most notably Oracle (ORCL:Nasdaq), pooh-poohed the deal, saying that
stringing together complex technologies through acquisitions is easier said
than done.
And in its most recent quarterly results release, when it reported record
revenue of $80.7 million that was backed up by $153 million in deferred
revenue, the company cautioned that integration of Tradex could be a
stumbling point.
In the release's boilerplate section that noted that actual results could
differ from projections, Ariba said those differences could result from,
among other things, "difficulties in assimilating companies recently
acquired, including Tradex."
Despite the problems, though, analysts are still positive on the company.
"Ariba could be the next Oracle," Robbie Stephens' Upin said. "And there were
quarters when Oracle promised and didn't deliver or it missed altogether. But
even for an Ariba, there will be those bumps along the road."
But as competition increases in the B2B sector, those bumps are getting more
pronounced.