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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