SciQuest Bucks the B2B Trend

SciQuest (SQST) bucked the trend set by other business-to-business exchanges in the second quarter by turning in strong results Wednesday.

The business-to-business, or B2B, exchange for the life sciences industry reported net revenue of $1.4 million, up 272% from the $301,862 in net revenue it reported for the March quarter. SciQuest also reported a loss of 35 cents per share, better than the loss of 38 cents per share analysts were expecting, according to Multex.com.

SciQuest, with its $273 million market cap, is a relatively small player in the B2B space. But its numbers stick out because of their comparison with those of Ventro(VNTR), its main competitor and a once high-profile B2B stock.

The two are in the piece of the B2B sector that involves launching Web sites where companies can go to buy and sell goods in an online marketplace. The other piece of the sector involves selling software programs that allow companies to trade with one another over the Internet. It includes more well-known companies like Ariba(ARBA) and Commerce One(CMRC).

Ventro, which said its customers had trouble wiring B2B technology into their own systems, disappointed analysts when it reported last month. (TSC wrote a story about the results then.) Those disappointing results pointed to a stark contrast between the quickly accelerating sales of B2B software makers and the slower growth in volumes across some B2B marketplaces. SciQuest's results, however, run counter to that trend.

"All in all I was impressed," says Gavin Mlinar, an analyst with Sands Brothers. "We cover three net market makers -- SciQuest and Ventro and RoweCom(ROWE). Those other two bombed, but SciQuest came through with what they said they would deliver." (Mlinar rates SciQuest a strong buy, and his firm was slated to underwrite a follow-on offering for the company, though that offering was postponed due to market conditions. His firm hasn't performed underwriting for Ventro or RoweCom.)

Investors, however, weren't rewarding the company for its results Wednesday. The stock finished off 11/32 at 9 5/8. That could be because the lock-up period for SciQuest's IPO shares expired Tuesday, according to the Web site Lockupend.com. When lock-up periods expire, company insiders are allowed to sell their shares, which can increase supply and depress a stock's price.

One of the things SciQuest has done right, analysts say, has been to remain neutral in the relationship between suppliers and distributors in the life sciences industry, which encompasses lab chemicals and equipment. Ventro, on the other hand, accepted an investment from VWR Scientific Products, a major distributor in that industry. That's made some suppliers balk at participating in Ventro's exchanges, because of fears that VWR will use Ventro as a vehicle to squeeze their prices.

SciQuest, in contrast, has gone after the other end of the supply chain, signing up 10 of the 20 largest suppliers in the industry to sell through its site.

"SciQuest is a distributor-neutral, unbiased marketplace, and in the life sciences industry, distributors tend to scare suppliers," says Sands Brothers' Mlinar. "We've always considered SciQuest to have a superior business model."

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