B2Bs Rose Hard and Fell Hard Once Before. Time for Act Two?

Beware the booming B2Bs.

Several business-to-business stocks rocketed upward Wednesday on little news as the Nasdaq waffled for most of the day. While some market watchers said investors were betting on a strong quarter, many analysts couldn't explain increases of 15% or more in stocks like Commerce One (CMRC), Ventro (VNTR), PurchasePro.com (PPRO) and Clarus (CLRS).

Big Day for B2B Several of the stocks rallied Wednesday on little news.

"You've got me," says Bill Epifanio, B2B analyst at J.P. Morgan. "They're all going nuts on nothing."

Since earnings season ended, sentiment about B2B stocks has shifted back to the rose-colored variety in this sector. While this change is based on the concrete results that companies like Ariba (ARBA), i2 Technologies (ITWO) and FreeMarkets (FMKT) delivered, investors also may want to pause and reflect. After all, it was only this past spring that investors grabbed any B2B stock within reach on hopes of unlimited growth, only to have them come crashing back down.

Focus

"Before, we were buying stocks on promises of what they could be, and that's when it got out of hand," says Eric Upin, B2B analyst at Robertson Stephens. "Now, you've got to focus on which stocks are delivering lots of growth and revenue."

Upin looks to Ariba and i2 Technologies as examples of companies that are actually delivering. (He rates both a buy, and his firm hasn't done underwriting for either.)

Ariba recorded $153 million in deferred revenue in the most recent quarter. Deferred revenue is money that a company collects before it actually delivers a product or does its job. It's a good signal, because if people are willing to pay before a company gives them something in return, it means there's strong demand. Ariba was up $8, or 6%, to $152.50.

i2 is considered a strong player in supply-chain management software, and it has a partnership with Ariba and IBM (IBM). It climbed $11.13, or 7%, to $168.75.

Reaching?

But in a possible indication that investors may have just been reaching for any B2B stock, Ventro finished up $2.69, or 21%, at $15.50 on no news. This is the same company that upset analysts and investors with a poor second-quarter performance, with just $1.8 million in net revenue. "Investors need to be more careful regarding which of the B2Bs they select," adds David Hilal, a B2B analyst at Friedman Billings Ramsey. "When B2B was at its highest, any company that used that acronym seemed to perform well. Now, you have to dig deeper and figure out which ones are the real players in this new economy."

Meanwhile, one of the most interesting subplots Wednesday involved Commerce One. On no real news -- there was talk about an already announced deal -- Commerce One shot up $10.88, or 21%, to $63.25.

There's been a lot of chatter about the company lately. Gossips love to talk about how its partnership with German software maker SAP (SAP) might lead to a merger. Then there's the persistent rumor that the two companies will soon announce two more Internet exchanges for major industry groups. On top of that, Covisint, the big auto exchange that Commerce One is helping build, is setting up to launch near the end of September.

Lump that in with the fact that Commerce One's stock has slouched in Ariba's shadow lately, add a dash of Wednesday's positive sector sentiment, and you've got the most active stock on the Nasdaq Wednesday. It traded more than 27 million shares, whereas it usually trades 6.6 million.

Ready to Bolt

Gavin Mlinar, an analyst at Sands Brothers, says the stock has been setting up for a move for a while.

"September is a big month for them; they have so much on the table for a potential lift," Mlinar says. He's been crowing about Commerce One since mid-August, when he said the company was starting to look more attractive than Ariba on a valuation basis.

And overall, Mlinar contends that conditions were right for a B2B run.

"The emphasis and momentum has clearly been building lately," he says. "There wasn't much, on a broad basis, since April, and now we're seeing a total rotation into these names."

Which is just what some observers are cautioning against.

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