Company Focus - Tired of Net losers? Try these B2B plays
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Company Focus - Tired of Net losers? Try these B2B plays

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Company Focus -- Tired of Net losers? Try these B2B plays - MSN Money Page 1 of 6 MSN Home | My MSN | Hotmail | Shopping | Money | People & Chat Web Search: Money Home Investing Banking | Planning | Taxes | Money Plus Investing Home Portfolio Markets Stocks Funds Insight Brokers CNBC TV Print-friendly version MSN Money Insight AdvertisementSend this to a friend Company Focus Jubak's Journal Posted 10/16/2000 Tired of Net losers? Try SuperModelsthese B2B plays Start InvestingTibco and PurchasePro.com are two sleepers with the upward Strategy Lab earnings revisions to wake up investors. Both have promising products in a market with huge potential. Company FocusBy Michael Brush Mutual Funds Street Patrol The markets loathe most anything that has to do with the Internet these days. So if you like to put a portion of your Other Views portfolio into contrarian plays, this is a good time to look at Contrarian Chronicles business-to-business (B2B) stocks. TheStreet.com Your money, fast. The two flagship companies in File your taxes online. Resources It's easy at H&R Block. this group, of course, are B2B Article Indexexchange developers Ariba Decision Centers (ARBA, news, msgs) and Commerce One (CMRC, news, msgs). They both still have great earnings revisions, Related Linksaccording to IBES International and Zacks, despite the Market Dispatchesrecent declines in their stock prices. ...

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Posted 10/16/2000
Choosing a Focus
To select the companies
for this column, Michael
Brush screens for stocks
with positive earnings
estimate revisions. Learn
more about his strategy:
Track the 'numbers
bumps' for stock jumps
8 ways to tell what
earnings revisions really
mean
Sponsored Link:
For more information,
check out Michael
Brush's
Lessons from the
Company Focus
Tired of Net losers? Try
these B2B plays
Tibco and PurchasePro.com are two sleepers with the upward
earnings revisions to wake up investors. Both have promising
products in a market with huge potential.
By
Michael Brush
The markets loathe most anything that has to do with the
Internet these days. So if you like to put a portion of your
portfolio into contrarian plays, this is a good time to look at
business-to-business (B2B) stocks.
The two flagship companies in
this group, of course, are B2B
exchange developers
Ariba
(
ARBA
,
news
,
msgs
) and
Commerce One
(
CMRC
,
news
,
msgs
). They both still have great earnings revisions,
according to IBES International and Zacks, despite the
recent declines in their stock prices.
A deeper look at the sector, however, will take you beyond
the headline stocks to a pair of companies whose decent
upward earnings revisions suggest they are promising
players as well. The first is
Tibco Software
(
TIBX
,
news
,
msgs
). Think of it as a plumber. This company writes code
that connects the hodge-podge of software programs
inside most companies. The second is
PurchasePro.com
(
PPRO
,
news
,
msgs
). It is trying to stake a claim in the
arena of business exchanges for small companies.
Tibco: a rare money-maker
One of the first things you notice about this company is that
it actually makes money. That’s a rarity in the unproven
territory of B2B. Look closely at what Tibco does, and this
should be no surprise.
Instead of creating B2B exchanges, which still don’t
produce much in the way of profits, Tibco supplies the
software-integration tools companies need before they can
Advertisement
Your money, fast.
File your taxes online.
It's easy at H&R Block.
Page 1 of 6
Company Focus -- Tired of Net losers? Try these B2B plays - MSN Money
1/13/2004
http://moneycentral.msn.com/articles/invest/company/5841.asp
Front Line
at Barnes &
Noble.
use exchanges. “They are an intermediary that makes all
the disparate parts of a company’s software system work
together,” explains Mark Lebovitz, an analyst with Munder
Capital Management, which owns shares of Tibco in the
Munder NetNet Fund
(
MNNAX
).
What does this have to do with B2B commerce?
“Everybody is trying to be an e-business,” says Tibco chief
executive Vivek Ranadive. “But that means more than
having a Web site. It means connecting everything
together. You need a platform for that. And we are the
platform.” For companies to take advantage of online
commerce, explains Ranadive, they have to do three
things. First, they must integrate their own software
applications. Then they have to extend the system to
business partners and customers. “We provide the end-to-
end infrastructure for doing all three.”
What’s special about Tibco’s approach is that it lets
companies set up “event-driven” networks with rapid
response times. A purchase order or a price change, for
example, might trigger a credit check, a notice to a
distributor or an adjustment in an inventory catalogue.
Tibco software essentially helps make the data flow more
quickly, by linking various applications across a network.
The right company for the right job
If you understand Tibco’s roots, it’s easy to see why it’s the
right company for the job. The company grew out of a
business Ranadive founded in the early 1990s to supply
Wall Street trading floors with high-performance messaging
systems. That company, known as Teknekron Software,
was purchased by the financial news service Reuters about
six years ago. Ranadive then founded Tibco Software,
which is allowed to use the basic technology developed for
Teknekron in other applications. (Reuters owns more than
50% of Tibco, and Europeans buy shares of Reuters to get
exposure to technology because of the Tibco holding.) The
heart of the Tibco approach is a concept called the
Information Bus. This is essentially a system where users
can send to or access information pools organized by topic,
using “subject-based routing.”
Tibco has three basic product lines. ActiveEnterprise helps
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information move among applications, databases and
portals. ActivePortal helps users meld proprietary internal
content and external feeds at a site. Its what makes much
of the Yahoo! site work, for example. ActiveExchange
permits secure, real-time B2B transactions.
While Tibco’s technology was first developed for trading
floors, it’s now put to use in several sectors, including
energy, manufacturing and telecommunications.
Companies using Tibco software include
Dynegy
(
DYN
,
news
,
msgs
),
Merrill Lynch
(
MER
,
news
,
msgs
) and
Yahoo!
(
YHOO
,
news
,
msgs
). The Palo Alto, Calif.-based
Tibco has an impressive list of partners, as well. The major
computer-system consulting firms like Ernst & Young,
KPMG and Deloitte Consulting all offer Tibco software to
clients. Ariba uses it.
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Research Wizard
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One of the most promising partnerships, however, is with
Cisco Systems
(
CSCO
,
news
,
msgs
), a 7% owner of
Tibco. The networking giant embeds Tibco software in its
equipment. Telecom companies and cable TV providers
who buy matching software from Tibco can use it to better
manage services like DSL, cable-based phones and
interactive TV.
“One of the areas they are targeting with the Cisco
relationship is large telecom deals,” says Lebovitz. “This is
going to be a huge revenue driver.” Tibco recently inked
contracts with Telstra in Australia and KPN Telecom in
Holland. Another 15 or 20 similar deals are in the pipeline.
These should bring in about $10 million to $30 million each.
This will help drive what Prudential Securities’ David
Breiner predicts will be 69% year-over-year revenue growth
in fiscal 2001. Revenue in the most recent quarter jumped
180% compared to a year ago. Despite this kind of growth,
many analysts say the stock seems pricey. Tibco shares
trade at more than 40 times 2001 sales, nearly twice the
level of other e-business infrastructure stocks. Tibco
recently traded at around $69 on trailing 12-month sales of
$197 million, giving the company a market capitalization of
about $12.4 billion. “There is obviously short-term risk with
the valuation,” says Lebovitz. “The valuation is definitely
high. But so is the market potential.”
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Tibco faces some respectable competitors for that market
in
webMethods
(
WEBM
,
news
,
msgs
),
Vitria Technology
(
VITR
,
news
,
msgs
) and
IBM
(
IBM
,
news
,
msgs
). Another
risk is that changes in the Internet world could preempt its
software. Right now, there are many different “flavors” of
eXtensible Markup Language (XML), a standard used in
directing information on the Web. Tibco’s adapters help
solve this problem by allowing corporate software systems
to connect with other online marketplaces. More XML
standardiziation would cut into the need for their products.
“We don’t think it will happen,” says Lebovitz. “But if every
industry would standardize, then the adapters that Tibco
makes would become less important.”
PurchasePro.com's two-pronged approach
PurchasePro got its start building an online marketplace for
the hospitality industry. Now the Las Vegas, Nevada-based
company wants to set up B2B exchanges for small- and
medium-size companies in all sectors.
The company is taking a two-pronged approach. First, it is
creating what it calls private-label “eMarketplaces” --
branded exchanges carrying the name of the business
paying PurchasePro to set the whole thing up.
Office
Depot
(
ODP
,
news
,
msgs
),
Sprint
(
FON
,
news
,
msgs
) and
Hilton Hotels
(
HLT
,
news
,
msgs
) are three examples.
Next, PurchasePro wants to link members of these private-
label exchanges into one huge network where buyers and
sellers meet and trade. “We are building a universal
database and trying to get as many people into the
platform as possible so they can do business with each
other,” says Chris Benyo, the head of marketing for
PurchsePro.
This makes sense, he says, even if firms enter the
PurchasePro world through a narrow, specialized
marketplace. The reason: About a third of what all
companies buy ends up being the same type of supplies.
PurchasePro’s goal is to bring them all together in one big,
public market, instead of just setting up a private
procurement system online. “We can create private
marketplaces, but the interconnection that we offer is
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different,” says Benyo. “Suppliers are more likely to join a
procurement network if they can open up a new sales
channel.”
But how will they cash in?
PurchasePro hopes to make money off the whole thing like
this: First, eMarketplace owners pay an upfront licensing
fee, as well as monthly maintenance costs. Next, these
marketplace owners bring in end-users who pay
subscription fees. Finally, PurchasePro gets a cut of
transactions, and it hopes to get decent ad revenue some
day.
Although it is unproven, the PurchasePro model makes
sense for a number of reasons, says Eric Gerster, an
analyst with T. Rowe Price, whose
New Horizons Fund
(
PRNHX
) owns shares in the company. First, it lets small
companies band together to get the purchasing power of
larger companies.
Company Focus
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Next, participants can join the network as a buyer, but then
turn into a seller. “Let’s say I am a local lumber yard and I
sign up because I want to be able to buy my office supplies
from Office Depot. I can also offer my products over the
network.” Naysayers think this won’t work because
suppliers like to bargain and cut individual deals with
customers -- something that does not happen in a big,
open market. But Benyo points out that suppliers can still
set up private price catalogues for different customers,
depending on things like how much they buy. “We are
trying to replicate the business world online.”
Another advantage, according to Gerster, is that
companies setting up the marketplaces do the legwork of
bringing in members. “The nice thing about their model is
that a lot of other people are doing the sales for them,
which gives them lower costs and higher margins over
time.” PurchasePro also runs the service provider. This
makes it easier on small companies. Finally, the company
has a partnership with America Online in which it pays AOL
for help with developing and marketing the PurchasePro
platform.
All of this sounds good in theory, but PurchasePro faces
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Company Focus -- Tired of Net losers? Try these B2B plays - MSN Money
1/13/2004
http://moneycentral.msn.com/articles/invest/company/5841.asp
one fundamental risk: What happens if you create a
marketplace and no one comes? “Our biggest competitor is
inertia,” says Benyo. PurchasePro won’t release the dollar
amount of business transacted in its system. During the
second quarter, however, there were only 8,000 purchase
orders in the system. The company has trailing 12-month
revenue of $19 million. The stock recently traded at just
over a split-adjusted $35.50 a share, giving the company a
market cap of $2.2 billion.
Beyond that, the potential is large. Forrester Research, for
example, estimates that B2B e-commerce will grow from
$43 billion in 1998 to $1.3 trillion by 2003. Gerster says
smaller companies are likely to participate, to enjoy the
advantages of B2B commerce. “The benefits of doing this
are much too big to ignored. They want to save money. But
they are not going to be able to go out an spend the money
to develop networks on their own.” If the PurchasePro
model works, they won’t have to.
Michael Brush does not own or control any stocks
mentioned in this story.
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