Commerce One's Stock Tumbles Despite the Company's Assurances

Updated from 12:48 p.m. ET

Commerce One's (CMRC Quote) shares were off sharply Friday on rumors the business-to-business software maker would have trouble hitting Wall Street's fourth-quarter estimates.

The stock came back somewhat, but it still was down $7.50, or 14%, at $45.81 recently. The concerns about the slowing sales also are coming just after company executives sold shares.

Commerce One offered a strong-worded rebuttal to the rumors, saying its business is on track for the current quarter and next year. Analysts expect the company will post a fourth-quarter loss of 7 cents a share and a profit of 2 cents a share next year, according to First Call/Thomson Financial.

"While we've been made aware of certain rumors about the company's fourth-quarter performance, they are complete fabrications, and we categorically deny those rumors," said Andrew McCarthy, a Commerce One spokesman. "We reiterate our outlook for the quarter and for 2001."

An internal memo that went out to the company's sales force reportedly spurred those rumors, though McCarthy said he hadn't seen the memo. He did say, however, that the company routinely issues material to its sales force about expected goals.

"Every quarter, we send lots of motivational material to our sales force to keep them pumped up during the quarter," McCarthy said.

Meanwhile, according to Federal Filings Newswires, Mark Hoffman, Commerce One's chief executive, sold 300,000 shares of stock on Oct. 30 and Oct. 31, during the "window" in which insiders are allowed to trade after the company reports quarterly results. Commerce One reported its third-quarter results on Oct. 19. The figure was three times more than the 100,000 shares Commerce One's top executive sold after the company announced its second-quarter results in July. McCarthy said Hoffman had significant options to purchase more shares, though he couldn't immediately say how many.

Jay Tenenbaum, the company's chief scientist and the brains behind its software, sold 253,435 shares on Oct. 24 and 25, more than double the 100,000 shares he sold on July 25, according to Federal Filings. Chuck Donchess, Commerce One's chief strategy officer and most often the company's public face, sold 140,000 shares on Oct. 24, less than the 170,000 shares he sold on July 31.

McCarthy said the sales are part of routine steps executives take to diversify their holdings. "This is part of normal disposal activity," he said.

Richard Williams, an analyst at Jefferies said Friday's events substantiate his downgrade in October over concerns that the company's sales were slowing.

"Their product, in our estimation, didn't scale well enough to satisfy their first group of customers," said Williams. In other words, Commerce One's software can't yet handle the millions of transactions that companies and electronic marketplaces want to run simultaneously. "Customers are requiring speed and numbers of transactions. And because the software can't quite handle that yet, they're having to build out the software to get there. We think they're not there yet, so they can't sell to their next batch of customers until they're done."

McCarthy said Commerce One doesn't comment on analysts' commentary.

Since Williams' downgrade, Commerce One's stock has lost 26% of its value.

Other analysts defended the stock Friday.

"The Commerce One thing is completely ridiculous," said Gavin Mlinar, an analyst at Sands Brothers who rates Commerce One a strong buy. "People are just looking to point out anything negative about these companies. There are a lot more shorts jumping in that's fueling the speculation." (His firm hasn't performed underwriting for the company.)

Short sellers are investors who try to benefit from a drop in a stock's price. And on Friday, those investors were the ones making money on Commerce One.