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B2B stocks on fire
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July 12, 2000: 7:32 p.m. ET
E-commerce software stocks surge after Ariba's strong results
By Staff Writer David Kleinbard
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NEW YORK (CNNfn) - The stocks of companies that power e-commerce surged Wednesday as e-commerce software leader Ariba Inc. reported fiscal third-quarter results that blew away analysts' expectations.
The stocks of e-commerce companies such as Ariba, Commerce One, and Purchasepro.com surged in regular trading Wednesday as the Nasdaq composite index gained about 3.6 percent. They jumped again in after-hours trading when Ariba's fiscal third quarter results were disclosed.
Ariba (ARBA: Research, Estimates), based in Mountain View, Calif., reported a net loss for the quarter, not including non-operating charges, of $11.3 million, or 5 cents per share, versus a net loss of $6 million, or 11 cents per share, in the same period last year. Analysts had expected Ariba (ARBA: Research, Estimates) to post a loss of 8 cents per share, according to the earnings estimate tracker First Call.
The company's revenue for the quarter ended June 30 reached $80.7 million, up 101 percent from the previous quarter and up 578 percent from the same period in 1999. The company said that it signed more than 100 new deals in the quarter, and deployed more than twice as many customers as last quarter.
Ariba's revenue blew away the $47 million to $50 million analysts had estimated for the quarter. The company's stock rose 12 to 103-1/2 in regular trading Wednesday before the earnings were released, amid a broad-based surge in tech stocks. It jumped another 12 to 116-1/4 in after-hours trading in response to the earnings announcement, meaning that Ariba's stock had gained about 22 percent from its opening price Wednesday morning.
"Ariba's stock was priced for perfection, but funny thing is that they delivered it," said Dresdner Kleinwort Benson analyst David Garrity. "The greater-than-expected revenue in the quarter indicates clearly to us that B2B commerce is a train that is accelerating at an increasing rate. It's a positive harbinger for other companies in the B2B sector."
"The company beat our revenue expectation by $33 million, which is a huge upside surprise," said CS First Boston analyst Brent Thill. "All the financial metrics were extremely solid. Their balance sheet was spotless, and deferred revenue rose to $84.6 million from $46.7 million in the previous quarter, which shows that their backlog continues to strengthen."
Other companies in sector benefit
Ariba's better-than-expected results bode well for other e-commerce and supply chain stocks, such as Commerce One (CMRC: Research, Estimates), Purchasepro.com (PPRO: Research, Estimates), and i2 Technologies (ITWO: Research, Estimates).
Commerce One's stock rose 9 points in regular trading Wednesday and then added another 5-1/8 after hours to reach 57. That put the stock up 27 percent from its opening price of 44-7/8.
Purchasepro.com rose 8-1/8 in regular trading and tacked on another 2-1/2 after hours, rising to 42-3/4 for a 20 percent gain from its opening price of 35-9/16.
Likewise, i2 jumped 7 points in regular trading and added 4 after hours, bringing it to 128, a 7.6 percent gain on the day.
B2B e-commerce stocks have been incredibly volatile over the past 12 months. Commerce One for example, has been as low as 4-13/32 and as high as 165-1/2. At its last price of 57, it's still 66 percent off its 52-week high.
Ariba sticks with profitability target date
During a conference call Wednesday evening, analysts asked Ariba's management whether they expect the company to become profitable before the third quarter of 2001, the company's previously indicated target for entering the black. Company execs said that they are still targeting that quarter, even though Ariba's revenue was above expectations.
Dresdner Kleinwort Benson's Garrity praised Ariba's decision to invest its money in obtaining greater market share, rather than posting profits.
"Companies in a market growing as rapidly as this one should opt to invest even more aggressively so that their installed base is secure when the market matures," he said. "To not invest aggressively this early in the cycle would be a strategic error."
Ariba's software and consulting services enable companies to set up online exchanges. The company has a software product that automates companies' internal procurement and one that automates procurement from external markets. Ariba charges transaction-based fees from those marketplaces. Analysts had estimated that Ariba's revenue would total $200 million in calendar 2000 and $400 million in 2001, but those estimates are likely to be increased substantially following Wednesday's earnings report.
Both Ariba and Commerce One are expected to face increased competition from Oracle (ORCL: Research, Estimates), which has a strong interest in B2B e-commerce. 
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