Despite SAP's Blessing, Commerce One Still Has a Ways to Go

The timely investment by the software giant brings some confidence, but issues remain.
By Joe Bousquin ,

Commerce One

(CMRC)

got a huge bump Friday after its sweetheart, German software giant

SAP

(SAP) - Get Report

, reaffirmed its love for the company with a well-timed $225 million investment into the e-commerce software maker.

The news rolled right over the revenue warning that Commerce One had issued earlier, and led its shares up $1.58, or 37%, to $5.84.

The struggling young software company, which was one of the darlings of the B2B rage during 1999 and 2000, said that revenues for its June quarter would come in at just $100 million to $120 million. Analysts, on the other hand, were expecting $162 million in sales, according to

Thomson Financial/First Call

. The company had already cut its revenue forecast, when it said revenues would be $160 million to $170 million, instead of the $170 million analysts were expecting at the time.

But while Commerce One's meteoric Friday is certainly notable, and shows that investors believe SAP -- to which Commerce One has attributed as much as a third of its sales -- is still committed to the company, the stock is merely back to where it was when jitters over the SAP-Commerce One relationship started in the first place.

On June 12, the stock closed at $5.91, just a nickel above its close Friday. June 12 was a day before news started coming out of an SAP conference in Orlando, Fla., that Commerce One wasn't getting a lot of prominent attention. A year earlier, Commerce One was the belle of SAP's ball. It was then that SAP took its initial $250 million, 4% stake in the company. With the $225 million investment Friday, that stake is now up to 20%.

That lack of prominence at the Orlando event started a downward slide in Commerce One's shares, as investors worried that it might signal a coming falling-out between the companies.

But other issues soon started coming into play. Bob Kimmitt, its president, took a job at

AOL Time Warner

(AOL)

. The market for its online marketplace software is nowhere near as strong as it was a year ago. Oh, and then there's the fact that the company is

having trouble getting shareholders to approve a corporate restructuring that's crucial to its relationship with

Covisint

, the electronic exchange set up by the

Big Three

automakers.

While the question over whether SAP will still support Commerce One seems to be settled -- at least for the time being -- these other issues are not. That means Friday's rise could be followed by the shares drifting lower again if investors focus on these issues again -- say around the time Commerce One reports its quarterly results on July 19.

On the plus side for the company is that while it lost Kimmitt, it has

gained Dennis Jones, the former longtime chief information officer of

FedEx

(FDX) - Get Report

. And even while issuing its revenue warning, CEO Mark Hoffman said he was "cautiously optimistic" about the company's prospects during the second half of the year, and that its pipeline for potential deals is growing.

Still, while the overhang that initially started Commerce One's dive has apparently been removed, investors should be cautious on the other issues that have not, and of the shrinking revenue picture the company is now forecasting.

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