B2B sat on a wall.
B2B had a great fall.
But all of B2B's women, and all of B2B's men, if they post strong enough quarters, may be able to put B2B back together again.
After a tremendously negative sentiment shift last week away from business-to-business e-commerce stocks -- shares of companies that help firms conduct business over the Internet -- strong quarterly results now seem to be rebuilding a base for the beat-up sector. And in the long run, the shakeout that these stocks have seen recently may be a good thing.
You need only look at B2B leaders like
to understand the B2B story. After closing at a split-adjusted 165 1/2 on March 8, Ariba spent the rest of March and a good part of April testing the limits of terminal velocity. It closed at 54 7/16 on April 17. Commerce One, after closing at a split-adjusted 135 5/8 on March 9, finished April 14 at just 33, or 75% lower.
Blowing Off B2B
But this past week, both stocks have started to recover thanks to strong quarterly results and positive outlooks from others in the sector. Thursday, Ariba ended regular trading up 1 at 69, while Commerce One had added more than 7 points in the wake of strong first-quarter results released Wednesday night. That put it up more than 15% to 55 in 4 p.m. trading. With $40 million in revenue in its most recent period, Ariba posted its own strong numbers April 12.
Combined with upbeat conference calls from
, B2B is getting its act back together -- though previous market highs are still a distant memory. But that might not be all bad. Analysts say that the gotta-get-in-now frenzy of B2B may be ebbing, a fact that might help establish B2B companies in the long run.
One effect of the selloff may be muted enthusiasm by big industry with regard to diving headlong into the fray of e-commerce alone. The possibility of big industries creating their own global exchanges, as opposed to relying on dot-coms that create and run B2B exchanges, was one factor that helped bring down B2B stocks. Now, with the prospects of huge equity payoffs diminished by fallen B2B stock prices, big business may pause to consider how best to get into online trading of goods and services.
"With the Old Economy guys, their moves have been driven to some degree by valuation envy," says Edward McCabe, B2B analyst at
. "And that's understandable. I mean, here they are, sitting in the board room trying to create shareholder value after underperforming the indexes for all these years, and suddenly someone comes into their supply chain and creates billions in market cap overnight. Sure, they're gonna think, 'How can I get a piece of that?'
"Now, as B2B valuations have come down, it wouldn't surprise me to see some of the pure-play B2B companies come back into favor, with Big Industry saying, 'OK, these guys do add value. Maybe they can help me out with this.'"
It's that promise, plus big revenue numbers from Ariba and Commerce One, that might help the sector rebuild itself with solid money. With the complexities and challenges of B2B e-commerce now becoming apparent, the momentum cash investors threw at anything B2B may cool.
"The stock market suddenly got people thinking again, instead of just jumping in blindly," says Patrick Mason, a B2B analyst at
And the pitfalls of the sector may give remaining investors improved views into the business of these companies.
William Epifanio, B2B analyst for
J.P. Morgan Securities
, says the tumble has also created a degree of skepticism about the sector that could benefit investors in the long run as companies are forced to tell the market more about their businesses.
The selloff has made the market skeptical about two things, Epifanio says. "One is the business models of these companies, compounded by the lack of visibility and clarity on the specifics of how these companies are going to make money and get a piece of the transaction flow."
Some analysts have started questioning whether B2B companies will be able to charge transaction fees on the billions of dollars of goods that are traded through electronic exchanges. Commerce One, for its part, said this week it expects to start seeing "meaningful" revenue from transaction fees in the second half of this year.
"And you can't criticize investors for wanting to know how it's all going to work," Epifanio says. "But once we do get that info, I'm in a boat now that says buy these stocks, because once the world understands what's going to happen here, and when they understand how it works, these stocks are going to take off."
Epifanio is particularly optimistic about Ariba and Commerce One, on which he has buy ratings. His firm has not performed underwriting on either company.
Finally, analysts see the events of this past week, where B2B stock prices -- and those of technology stocks in general -- have reacted positively to earnings news as a positive sign. For some, at least, that means the market may actually be assigning importance to fundamentals in the broader sector.
"These stocks always rally around a catalyst, and now these earnings seem to be a fairly strong catalyst," says Ian Morton, an analyst at
. "If you weren't seeing the stocks move coming out of some of these phenomenal quarters, that would probably be an indication of more rough times ahead."
That said, the near future, with the traditionally slow summer season approaching, promises to be anything but smooth.
"I think it'll still be rocky," says E*Offering's Mason. "People really got shocked in the last couple of weeks, and they still might have some selling to do into the strength, but that may also form a good base. Is this the beginning of an immediate rebound? I don't think that's the case, but I think this has shown that B2B is healthy, and that there are viable businesses here. The question has just become, how much do you want to pay for it?"
Isn't that the trillion-dollar question?