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Don't Be Blinded by PurchasePro.com Rocket

Up until last Tuesday, shares of business-to-business Internet procurement software vendor PurchasePro.com (PPRO) were performing reasonably well, if not spectacularly.

PPRO closed Nov. 1 at 40 1/8, or 54% higher than its closing price of 26 1/8 on Sept. 14, when the company went public.

By last Friday, thanks to a couple of well-received deals and a show of confidence by the company's CEO -- not to mention being in a red-hot sector -- shares of PurchasePro.com had soared to $64.69, or 148% above the Sept. 14 close. This gives PPRO the best aftermarket performance of all stocks listed in internet.com's latest IPODEX.

Overall, 32 of the 45 companies listed in the IPODEX, or 71%, have gained ground since their ticker debuts. That's higher than the last time I wrote about the IPODEX, when 53% (32 of 60) were up from their respective first-day closing prices.

Two other companies in the current IPODEX -- applications server vendor vendor Bluestone Software (BLSW) and e-commerce player vendor Broadbase Software (BBSW) -- also have posted triple-digit aftermarket gains.

Here are the 10 best performers in the IPODEX through Friday's trading:

PPRO PurchasePro.com Sept. 14 148%
BLSW Bluestone Software Sept. 24 127%
BBSW Broadbase Software Sept. 22 113%
NCNT Netcentives Oct. 14 88%
INAP InterNAP Network Services Sept. 29 82%
KEYN Keynote Systems Sept. 24 79%
IWOV Interwoven Oct. 8 79%
RDWR RADWARE Sept. 30 79%
EPNY E.piphany Sept. 22 78%
KANA Kana Communications Sept. 22 71%

PurchasePro.com targets small and mid-sized customers, as well as corporate purchase departments, for its automated procurement software, which is designed to help buyers and sellers move through the transaction process. The company bases its business strategy around a network of buyers and sellers which it calls an E-Marketplace. It boasts a strategic marketing agreement with Office Depot.

PPRO shares zoomed up last Tuesday after the company announced a joint venture with Workflow Management, an outsourcer of business services. Workflow's iGetSmart.com unit, which offers electronic commerce services for printing companies, will become the "preferred provider" for printing services to companies in PurchasePro.com's E-Marketplace.

Also fueling last week's rise was a revenue-sharing arrangement with vendor VerticalNet (VERT) and the announcement by PurchasePro.com CEO Charles Johnson that he will buy up to $1 million of PPRO stock. (Johnson already owns about 25% of the 18.7 million PPRO shares.) Investors like to see that kind of commitment from executives in a publicly traded company.

For his part, Johnson credits most of last week's run-up to Volpe Brown analyst Charles Finnie's initiating coverage of PPRO with a "strong buy" rating and setting a 12-month share price target of90.

While the surge in share price no doubt pleased PurchasePro.com's IPO investors, it left potential buyers of the stock contemplating a company whose value has gotten way ahead of revenues.

In the quarter ended Sept. 30, PurchasePro.com had revenues of $1.7 million, a 243% increase over the $0.5 million in last year's third quarter. Net loss for Q3 was $3.7 million (35 cents per share), compared to $1.5 million (18 cents per share) in Q3 '98.

With $3.3 million in revenue over the first three quarters of this year, and with a market capitalization of $1.16 billion, PurchasePro.com is currently trading at nearly 200x estimated 1999 revenue. That's even pricier than competitor Ariba's stock, which is trading at 179x 1999 revenue and has more than 10 times the sales.

Before last week's surge, with a market cap around $600 million, PPRO was a better buy at 100x revenue, but still overvalued. Right now the light from this aftermarket rocket is best viewed from a distance.


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