Internet 2001: Scramble For B2B Supremacy
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From now until the end of the year, The Morning Report will discuss each of the 13 Internet sectors and which members bear watching in 2001. Today we'll look at the three largest companies in the E-commerce Enablers sector.
A year ago, it was routinely overshadowed by higher-profile B2B e-commerce software vendors such as Ariba and Commerce One. Today i2 Technologies arguably has moved to the top of the short list of e-commerce software winners.
What isn't arguable is that ITWO had a much better year on the ticker than Ariba, Commerce One and any other e-commerce software company. In fact, up until Tuesday's market close, ITWO was the only year-to-date gainer among 40 e-commerce stocks trading since last Dec. 31.
But the supply-chain software vendor has been dragged down with the rest of the market this fall, and now trades at 17.5x trailing 12 months' revenues of $924 million, based on a $16.2 billion market capitalization through Wednesday.
That's a bargain for a company that is emerging as a key player in developing Internet-based marketplaces and product exchanges for the auto and aviation parts industries, among others. Further, ITWO consistently has been profitable. Excluding $772 million in non-cash charges related to its purchase of Aspect Development, ITWO had Q3 net income of $28.8 million, or 12 cents per share, beating profit estimates of 10 cents per share. I liked ITWO last year at this time; I like it just as much now.
Procurement software vendor Ariba signed a major partnership agreement with i2 Technologies and IBM early this year to build online B2B marketplaces for a number of industries.
But alliances can be ephemeral in the Internet industry, and already there are whispers that ITWO and ARBA, with similar ambitions and target markets, could soon be more foe than friend. Facing already formidable competition with Oracle and the Commerce One/SAP alliance, Ariba may be overmatched in a multi-front war.
Still, Ariba has the edge on Commerce One in revenues, with $279 million in TTM sales, including $135 million in Q3, versus $228 million and $113 million for Commerce One in those respective periods. And it achieved break-even last quarter, excluding non-operating charges, with a net loss of $1.1 million, or 0 cents per share.
The company predicts sales of $150 million to $160 million this quarter, which would give it as much as a 580% increase over the year-ago quarter, and a net profit of 2 cents to 3 cents, with more profitability going forward.
Even after losing 70% of their value since Sept. 22, though, ARBA shares are more than twice as expensive as ITWO's, trading at 43x TTM revenues of $279 million.
We'll know soon enough if Commerce One will meet Q4 forecasts or, as has been rumored, miss its target numbers. Talk of a shortfall immediately dropped CMRC 20% in mid-November.
The company responded by reiterating optimistic Q4 and annual projections. Commerce One said it still expects Q4 revenues of $173 million to $177 million and an operating loss of about 7 cents per share, down from 42 cents per share in last year's fourth quarter. CMRC also moved forward its target for breakeven operating earnings to the second quarter of 2001.
So what to make of this week's news that CMRC has lost a contract to provide direct procurement software to Converge, a group of electronics makers? The deal went instead to VerticalNet, causing an analyst at Thomas Weisel Partners to cut its rating of CMRC and sending shares down more than 30% on Wednesday alone.
Which makes Commerce One more affordable than ever. With a diminished market cap of about $4 billion, CMRC is valued at 17.9x TTM revenues, almost exactly the same as i2 Technologies.
I still prefer i2, but Commerce One might be worth a look after we get a look at Q4 numbers.