Don’t Be Blinded by Rocket

Up until last Tuesday, shares of business-to-business Internet
procurement software vendor (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 had soared to $64.69, or 148% above
the Sept. 14 close. This gives PPRO the best aftermarket performance of
all stocks listed in’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 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% 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 unit, which offers electronic commerce services
for printing companies, will become the “preferred provider” for
printing services to companies in’s E-Marketplace.

Also fueling last week’s rise was a revenue-sharing arrangement with
vendor VerticalNet (VERT)
and the announcement by 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’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, 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, 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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