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Vignette Warning Has Other Victims

A year ago, the general consensus among investors was that B2B e-commerce plays were among the best bets in the universe of 'Net tickers, while many other sectors were due for hard times.

On Thursday, at least, that market wisdom was turned upside down as most Internet stocks enjoyed yet another solid day of trading. The glaring exception? A handful of formerly high-flying e-commerce software vendors, dragged down by a gloomy revenue and earnings outlook provided by Web content management software provider Vignette .

Vignette led the southward charge, finishing the day at $7.81 (a drop of 37.5%) after hitting a new 52-week low of $6.78.

Yes, the same Vignette that picked up a slew of "strong buy" ratings from late last October through the end of the year. One of VIGN's fall cheerleaders, Deutsche Banc Alex. Brown, on Thursday downgraded Vignette to "market perform" from the "strong buy" rating of Oct. 26. And Dain Rauscher Wessels slashed VIGN to neutral from its "strong buy" rating of Dec. 18, which included a target price of $100 per share. Hey, they were just ballparking.

While Vignette met street forecasts for Q4 with net income of $649,000, or nil per share, on revenues of $123.9 million, the company lowered its revenue outlook for fiscal year 2001 because of anticipated continued softness in corporate IT spending. VIGN now expects revenues of $500 million this year, well below the $600 million consensus predictions on Wall Street. The company also announced layoffs of 15% of its workforce.

Victims of VIGN's forecast fallout include e-commerce software players such as Art Technology Group , which dropped 18.5% on Thursday; BroadVision , down 12.0%; and Interwoven , which tumbled 16.8%.

While only Vignette set a new yearly low on Thursday, the other three aren't too far from their respective 52-week bottoms as each prepares to release their own quarterlies next week. Let's look at some numbers to see if any of these companies stand out as a bargain:

Company         Jan. 18      52-week   Market      TTM        TTM   
                 Close         Low      Cap      Revenues   Earnings

Art Technology  $20.38       $15.88    $1.38B    $113.8M     -$2.2M
BroadVision      15.19         8.50    $4.09B    $320.7M     $42.3M
Interwoven       27.88        10.40    $2.78B     $85.1M     -$5.9M
Vignette          7.81         6.78    $1.84B    $366.7M      $1.0M

Note: TTM revenues and earnings for Vignette are through Q4; all others are only through the third quarter.

On a simple revenue multiple basis, Vignette is valued at 5x TTM revenues, while the multiples for the other are: ARTG, 12x; IWOV, 32.6x; and BVSN, 12.8x.

Keep in mind, though, that the multiples for the latter three will drop after they each report next week. For example, even if BroadVision's Q4 revenues merely match its Q3 total of $120 million, its value on a revenue multiple basis would fall to 10.3x, based on its current price, while, under the same scenario, ARTG would drop to 9.4x and IWOV to 23.7x.

But earnings are the real key, and none of these companies are bargains on that basis. Interwoven posted its first profitable quarter in Q3 2000, while ARTG only went into the black in the second quarter of last year and Vignette barely squeaked out a profit in the fourth quarter. Net profits for all exclude a number of costs.

BroadVision is the most solidly profitable, but with a TTM earnings ratio of 96.7x, BVSN is nearly five times as costly as the Standard & Poor's 500 average of 20x.

While it may be tempting for investors to jump on these stocks in light of Thursday's price plunge, the smart thing to do is at least wait for ARTG, IWOV and BVSN to report next week. If their guidances for 2001 are anything like Vignette's, I'd wait for a more optimistic outlook.