A Street Dissenter Weighs In on a B2B Star
By BILL ALPERT
Nearly 40 brokerage-firm analysts have lavished praise on Ariba, the stock-market star of business-to-business e-commerce. But one launched coverage of the procurement-software firm Tuesday with a Neutral rating, and clipped a third off Ariba's shares. The analyst, Lehman Brothers' Patrick Walravens, spooked investors with a report that Ariba's core market was already 24% penetrated. Pricing pressures, said the Lehman analyst, had begun to appear.
"Ariba is a superb company," says Walravens. But with a $25 billion market value -- as of the day Walravens published his note -- the analyst saw little upside. Assuming Ariba reaches $5.2 billion in revenues for the year 2005, he figures, that business' discounted present value is $27 billion. Even at Friday's close of $67, the Mountain View, California, firm commands an $18 billion stock-market cap.
Even after Wall Street abandoned hope for business-to-consumer plays like Amazon.com, investors remained gaga for B2B stocks like Ariba. The company has consistently exceeded growth forecasts for its Internet-based systems -- which help large enterprises buy products and services. September-quarter revenues of $135 million, for example, were 67% above the immediately preceding quarter's level. Ignoring noncash expenses (as everyone seems to do these days), Ariba already has passed breakeven.
But after talking to 30 e-procurement customers, and the operators of Webbased B2B marketplaces, the Lehman analyst says he found plenty of evidence of pricing pressure. One company told Walravens that it obtained a product for $250,000 from an Ariba rival, compared with Ariba's price of $2 million. Says the analyst: "At some point, Ariba's going to have to respond."
Ariba didn't respond to Barron's, however, despite several days of requests for comment.
Walravens does like Ariba rival Commerce One. That Pleasanton, California, firm has a more complete solution, says the analyst, thanks to a collaboration with the manufacturing software giant SAP. What's more, Commerce One's $36 shares trade at a multiple of sales that's about one-third of Ariba's.
Reuters is one of the few Old Economy companies with a good Internet story. The word "old" is not used loosely: The company started spreading financial news more than 150 years ago, by carrier pigeon and telegraph. But London-based Reuters Group Holdings has adeptly stayed on the technology curve, and announced a companywide initiative this year to re-engineer all its financial-information products into Internet-style offerings. According to Tom Glocer, who will become Reuters' chief executive when Peter Job retires next July, the lasting benefits of Internet technologies will accrue to established businesses like Reuters, rather than fading dot.coms. "Was there any such thing as the New Economy?" asks Glocer. "Or was there only one economy?"
By BILL ALPERT
Nearly 40 brokerage-firm analysts have lavished praise on Ariba, the stock-market star of business-to-business e-commerce. But one launched coverage of the procurement-software firm Tuesday with a Neutral rating, and clipped a third off Ariba's shares. The analyst, Lehman Brothers' Patrick Walravens, spooked investors with a report that Ariba's core market was already 24% penetrated. Pricing pressures, said the Lehman analyst, had begun to appear.
"Ariba is a superb company," says Walravens. But with a $25 billion market value -- as of the day Walravens published his note -- the analyst saw little upside. Assuming Ariba reaches $5.2 billion in revenues for the year 2005, he figures, that business' discounted present value is $27 billion. Even at Friday's close of $67, the Mountain View, California, firm commands an $18 billion stock-market cap.
Even after Wall Street abandoned hope for business-to-consumer plays like Amazon.com, investors remained gaga for B2B stocks like Ariba. The company has consistently exceeded growth forecasts for its Internet-based systems -- which help large enterprises buy products and services. September-quarter revenues of $135 million, for example, were 67% above the immediately preceding quarter's level. Ignoring noncash expenses (as everyone seems to do these days), Ariba already has passed breakeven.
But after talking to 30 e-procurement customers, and the operators of Webbased B2B marketplaces, the Lehman analyst says he found plenty of evidence of pricing pressure. One company told Walravens that it obtained a product for $250,000 from an Ariba rival, compared with Ariba's price of $2 million. Says the analyst: "At some point, Ariba's going to have to respond."
Ariba didn't respond to Barron's, however, despite several days of requests for comment.
Walravens does like Ariba rival Commerce One. That Pleasanton, California, firm has a more complete solution, says the analyst, thanks to a collaboration with the manufacturing software giant SAP. What's more, Commerce One's $36 shares trade at a multiple of sales that's about one-third of Ariba's.
Reuters is one of the few Old Economy companies with a good Internet story. The word "old" is not used loosely: The company started spreading financial news more than 150 years ago, by carrier pigeon and telegraph. But London-based Reuters Group Holdings has adeptly stayed on the technology curve, and announced a companywide initiative this year to re-engineer all its financial-information products into Internet-style offerings. According to Tom Glocer, who will become Reuters' chief executive when Peter Job retires next July, the lasting benefits of Internet technologies will accrue to established businesses like Reuters, rather than fading dot.coms. "Was there any such thing as the New Economy?" asks Glocer. "Or was there only one economy?"
