Monday was like the good old days for

webMethods

(WEBM)

. The business-to-business software company's stock shot up 23%, regaining its triple-digit status at 110 3/8. But jumps like that may be the problem.

webMethods, which is expected to report a loss of 27 cents a share for the quarter after the close of markets today, has given investors one of the more rolling of roller coaster rides since its initial public offering Feb. 11. After pricing at 35, the stock shot up more than 500% to end its first day of regular session trading at 212 5/8. More recently, it has traded about 70% below it's all-time high of 336 1/4, reached Feb. 29.

The company's business is at the heart of what many techies call the second Web revolution -- the adoption of the XML programming language. Heralded by some as the Next Big Thing, XML or extensible markup language, lets computers understand the kinds of information they pass to one another, such as whether a number is a price or a quantity.

Microsoft

(MSFT) - Get Report

and others expect XML to become critical for Internet-based business communication, including e-commerce, and webMethods is seen as an early entrant into the market.

But while the buzz about XML has reached a loud din, it hasn't steadied webMethods' stock. On April 13, for example, the stock dropped 50 5/6, or 36%, to close at 90 11/16 on virtually no news. The slide was so fierce, even in the bold and bumpy world of B2B, it inspired

Morgan Stanley Dean Witter

analyst Charles Phillips to pen a note stressing the unchanged fundamentals of the company. Unfortunately, he couldn't offer a concrete explanation for the selloff, either, and the stock slid nearly 30 more points the next day.

But that was before the Earnings Season That Was. Since software maker

Ariba

(ARBA)

reported higher than expected earnings April 12, B2B stock after B2B stock has

dialed Wall Street with positive news, and their stocks have regained momentum. Now that nearly all major B2B companies have reported, webMethods' call today will act as a bookend for the sector's earnings. But ironically, whether the adoption of XML will make webMethods' software indispensable or obsolete is something XML-heads passionately debate. And of course, the volatility of the stock isn't expected to calm anytime soon.

"With the wild volatility of the market, 20% movement in a day is not uncommon for this stock," says David Hilal, an analyst with

Friedman, Billings, Ramsey

, who notes that just 4.7 million shares of the company trade publicly. He rates the stock a buy, but his firm has a vested interest in the stock performing well since it did underwriting for webMethods' IPO.

XML Deals Aplenty

If webMethods' news during the most recent period is any indication, its numbers should be as strong as its B2B peers. webMethods announced a slew of deals and partnerships during the March quarter, including ones with

FedEx

(FDX) - Get Report

,

Commerce One

(CMRC)

,

Ventro

(VNTR) - Get Report

,

Staples.com

,

Eastman Chemical

(EMN) - Get Report

and

W.W. Grainger

(GWW) - Get Report

. On Monday, it announced a deal to automate how

Bell Atlantic

(BEL)

exchanges information with its top suppliers. Based on those deals, Hilal is expecting a "very strong quarter."

webMethods CEO Phillip Merrick says the wild ride in B2B stocks is ironic, given the deals going on in the sector.

"It's pretty interesting, because while there was this correction going on in B2B stocks, I think anybody involved in B2B itself was seeing a pretty healthy jump in activity," says Merrick, who contends his stock is no more volatile than those of his peers. "If you look at the deals we've been announcing, right across the board, there's huge interest in our solution and in B2B in general."

Put a Label on It

There's also a huge interest in XML, because of its ability to label the information it's carrying. That's a big step forward from HTML, XML's predecessor, which simply told computers how to display information, but not necessarily what it was.

Now, with XML, a computer understands whether a number is a price or a quantity, or if a word is a name or an address. That seemingly simple distinction is extremely important in making the systems of different companies talk to each other, and that's where webMethods comes in. The company's software essentially translates one company's data -- say a purchase order -- into an XML format. Once the purchase order is transmitted to a supplier, webMethods' software can decode it on the other end so the supplier's system automatically understands what the first company wants to buy.

XML has slowly gained momentum since programmers started noodling with it in 1996, and Microsoft's Steve Balmer has called it the "secret sauce" that will propel the Net forward. Companies competing for a piece of the XML pie include webMethods,

OnDisplay

(ONDS)

and

Extricity Software

and

Bowstreet Software

, both still private.

"The advantage of XML in terms of the B2B world is that it can provide a common method for exchanging information," says Victor Votsch, a research director with industry consultant

Gartner Group

. "It creates this sort of dial tone idea, a way to transmit content between partners."

Looking Forward

Yet while many analysts believe XML will become the defacto standard for communicating over the Web, some, like Votsch, question whether that will be a good thing for companies like webMethods. Especially if companies start using systems based on XML itself.

"As this technology gets mainstreamed into other applications, a vendor that concentrates on it becomes much less important," Votsch says. "The need for specialty products goes away."

Others disagree.

"Yeah, I've heard that argument before," says Laurie Orlov, research director for e-business applications at

Forrester Research

. "But the pace at which people alter legacy systems is glacial. I think webMethods has a viable life for a while."

webMethods' Merrick, naturally, sees a bright future.

"XML certainly is the right foundation for B2B going forward, but it's a little bit like the mainframes vs. the servers a couple decades ago," Merrick says. "You're not going to replace the mainframe, you've got to work with it. You're not going to replace your

old systems, you're going to use what's there."

And that means using his company's software, Merrick contends. At least until the Next Next Big Thing comes along.