Investors Zoom In on Likely B2B Survivors

Hundreds of companies have rushed into the online “business-to-business,” or B2B, e-commerce market over the past year, fueling overblown hype about the market’s prospects and sending stocks of the industry’s players into wild gyrations.

Now, though, investors are starting to focus on a select group of competitors they believe will survive a B2B shakeout that’s already underway. It’s a parallel to the way investors abandoned dozens of faltering “dot-com” stocks earlier this year after the shares had soared in 1999.

Among the B2B developers whose outlooks are considered sound--and whose stocks have been rising sharply in recent weeks as a result--are I2 Technologies Inc., Ariba Inc., Commerce One Inc. and PurchasePro.com Inc., among others. And that list doesn’t include other software giants that have sizable B2B programs, including Oracle Corp. and SAP of Germany.

These B2B companies develop the software and other infrastructure that enable companies to do considerable business between themselves online, such as purchasing supplies, comparing prices of different vendors and reducing the time between placing orders and filling them. The upshot is that the systems are more efficient, save paperwork and cut costs. Some of the B2B programs are tailored to just one industry, such as autos, while others are diversified.

From the lay person’s viewpoint, B2B and its related markets--such as “supply-chain management” and “Web-centric procurement”--seem an arcane field that sounds as boring as watching paint dry. But for the companies using the services and for the software providers, it’s an exploding business that by some accounts is used by only 15% of the Fortune 500. That means there’s an enormous market still to be tapped by the savviest B2B software companies.

That’s also why the stock of I2 Technologies has surged 84% so far this year. Ariba’s stock is up 43% year to date, and Tibco Software Inc. has gained 34%.

But shares of some of the other players--such as PurchasePro.com and Commerce One--have only recently begun spurting higher after being smashed by the “tech wreck” that began last March. They’re still showing losses for the year so far, and their recent gains haven’t come without some rude, daily setbacks along the way.

Many of the stocks that have rallied, meanwhile, are now priced at jaw-dropping multiples to their per-share earnings. That’s assuming they have earnings; even some of the companies expected to survive long term, such as Commerce One, are still losing money.

However, I2 Technologies on Tuesday announced another profitable quarter, saying it earned 12 cents per diluted share in the three months ended Sept. 30 (excluding one-time charges), topping analysts’ estimates.

The company also said it plans a 2-for-1 stock split, effective in early December. But now the stock trades at a whopping 421 times its expected per-share profit for all of 2000. It closed Wednesday at $179 a share, down $1.06 for the day, on the Nasdaq market.

The Dallas-based concern also helped bolster its market position this spring when it bought Aspect Development Inc., a Mountain View, Calif.-based B2B company, for $9.3 billion in stock. The price tag stunned many as awfully high, but analysts still applauded the move because it helped fill holes in I2 Technologies’ software lineup.

Also on Tuesday, PurchasePro.com reported that it’s performance is still improving, saying it lost 13 cents a share in the third quarter--a narrower loss than Wall Street had forecast and smaller than the 25 cents a share it lost a year earlier.

Ariba, meanwhile, reported Wednesday that its net loss widened in the fiscal fourth quarter. But excluding one-time charges, the company was break-even per share, while Wall Street expected a 5-cent loss on that basis.

Even so, the stocks of these companies remain extremely volatile. Their see-saw moves reflect “the very divergent opinions about what the companies are worth, and there’s no clear-cut answer,” said Richard Williams, an analyst with the investment firm Jefferies & Co. in New York.

At the moment these are still “concept stocks, so there is no fixed way to value them,” Williams said. “It’s a war between the skeptics and the believers.”

Yet it appears most investors are “specifically interested in investing in the real leaders” of the industry, and “the clear leaders to us are Ariba, Commerce One and I2 Technologies,” said William Epifanio, an analyst with J.P. Morgan Securities in New York.

Epifanio is well aware that these stocks are trading at “very high multiples” of the companies’ earnings--and of their sales, for that matter. Hence, “any slight whiff of a problem . . . and the market would react extremely and quickly,” meaning the stocks would plunge, he said.

Even so, “we’re very bullish about all three” of the companies because they’re in “very high-growth markets with very low penetration right now” by the B2B software providers, Epifanio said.

Williams agreed. In a bulletin to clients after I2 Technologies reported its strong third-quarter results, he reiterated his “hold” rating on the stock, saying “investor expectations have fully discounted the good news in the quarter,” and that the stock now “may be vulnerable to a pullback if anything less than perfection is achieved.”

Still, a key indicator of which companies should prosper is the lineup of customers they’re attracting, and I2 Technologies is doing well by that gauge, too. The company has signed up marquee names such as Dell Computer Corp., Hewlett-Packard Co. and Compaq Computer Corp. in the past year.

Landing deals like that should have a positive ripple effect, Williams said, because “name-recognition is increasingly important to the business managers who still have to make the decisions about what software they will buy.”

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Leading Contenders

After lots of hype and a wave of new entrants, a few top providers of “business-to-business” software for online transactions are now rallying sharply, though some still show losses for the year to date. Here are some of the major players:

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Ticker Price on % change % change Stock symbol Wednesday from 7/31 this year Purchase Pro.com PPRO $32.56 +67% -53% TCommerce One CMRC 59.19 +41 -40 i2 Technologies ITWO 179.00 +38 +84 Agile Software AGIL 61.63 +11 -43 Ariba ARBA 127.06 +10 +43 Tibco Software TIBX 68.38 -34 +34

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Source: Bloomberg News