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E-Commerce Stars and An Undiscovered Gem

Along with infrastructure companies, they are the latest darlings of Wall Street analysts, online pundits and chat room cognoscenti.

They are the e-commerce enablers, the companies providing the software and services that promise to transform the Internet into the greatest money-making machine of all time.

The ones drawing the most attention are the companies working the business-to-business sector, a number of which have gone public this summer. Perhaps the best-known of that group is Ariba (ARBA), which grabbed the spotlight on June 23 when its IPO soared, finishing the first day of trading at $90 per share, a whopping 291% above the $23 offer price.

Ariba makes software and provides services that link buyers and sellers, allowing businesses to manage supply purchases over the Net and corporate intranets and automate e-commerce transactions.

Since its sizzling debut, Ariba has continued to climb, and ARBA shares were trading Thursday afternoon at $143.25. SG Cowen, which began coverage of Ariba Wednesday with a "buy" rating, has set a 12-month price target of $165 per share.

With a market cap of $6.5 billion, though, Ariba is valued at 144x estimated 1999 revenues of $45 million.

Fortunately, there are several other e-commerce companies with promising futures whose stocks are a much better bargain than Ariba's. Among the more interesting are Commerce One and Art Technology Group.

Commerce One (CMRC) is no sleeper. Like Ariba, the company also had an eye-catching (though not quite as spectacular) IPO. It went public on July 1, finishing the day at $61 per share, more than three times the $21 offer price. As of Thursday afternoon, it was trading at $61, up from Wednesday's closing price of $54.

Also like Ariba, Commerce One picked up a "buy" rating Wednesday, this one from SoundView Technology, which set a target price of $65. The company's current market cap of $1.4 billion, along with projected '99 revenues of $18 million, give it a valuation of 75x sales.

Commerce One competes directly with Ariba, and though it lags in sales, the market for e-commerce software -- estimated by International Data Corp. to reach $13.1 billion in 2003 -- will support several winners. With customers such as Pitney Bowes and British Telecom, Commerce One has established itself as a serious player.

One of the best values out there, in my opinion, is Art Technology Group (ATG). Based in Boston, the company builds Web sites that enable companies to engage in e-commerce and related activities such as advertising and e-mail. In addition to its Dynamo e-commerce software, ATG provides customers with consulting and support services.

The company went public on July 21, closing the day at $18.06, 51% above the $12 offer price. As of Thursday afternoon ARTG shares were trading at $23.50.

ATG has some heavyweight competitors, including IBM and BEA Systems, but it has managed to score some serious customer wins. The company designed Sony's mega-Web site, and counts 3M, BellSouth, Eastman Kodak and Sun Microsystems among its more than 100 customers.

Revenue in the quarter and six months ended June 30 were $4.0 million and $6.6 million, more than double the comparable year-ago periods.

With projected '99 revenues of $25 million and a market cap of $740 million, ATG is now valued at 30x estimated '99 revenues. However, the company is in the middle of an ambitious push for new business in Europe and Asia, so revenues could grow even faster. Giving ATG $30 million in '99 revenues, the company is valued at multiple of 25.

ATG was begun in 1991 by a couple of MIT students. It began selling e-commerce software in 1996. The company's growth has been purposeful and deliberate. I believe ATG is built for the long haul and should continue to grow in value.


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