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A Percentage Game: Bests Ariba

And says it'll turn profitable two quarters ahead of expectations.

By focusing on an area where there's not much competition,


was able to do what

Commerce One


couldn't -- best the second-quarter sequential revenue growth of



. Among B2B stocks this earnings season, that's all that matters.

Investors were rewarding it accordingly Thursday, sending the stock up 16%, or 7, to 49 1/2. But in some ways it's regaining the midteen percentage loss it suffered Wednesday before its earnings were announced.

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Wednesday, PurchasePro reported second-quarter revenue of $9.5 million, an increase of 109% over the previous quarter, topping Ariba's 101% increase. It's a lot less revenue than the $62 million that Commerce One handed in on Tuesday, but sequentially Commerce One increased revenue only 79%. And in the B2B game, it's that percentage gain that matters.

"PurchasePro's results underscore the opportunity that exists in the middle market," says Chris Vroom, a

Credit Suisse First Boston

analyst who rates PurchasePro a strong buy. (His firm has performed banking services for the company.) "It's a distinct opportunity from what Ariba and Commerce One are focusing on, and in an area where there's relatively little competition."

PurchasePro, which posted a net loss of $7.1 million, or 22 cents a share compared with the consensus estimate of a 30 cents-a-share loss, builds exchanges and private market places for companies with revenue between $3 million and $20 million annually. Charles Johnson Jr., PurchasePro's founder and chief executive, says he wants to expand his company's target customers to those with less than $50 million in annual revenue, which includes about a half million U.S. businesses.

Ariba and Commerce One, on the other hand, have been targeting larger,

Fortune 500

-type businesses, to build mega-exchanges and procurement platforms for industries like autos, aerospace and energy. Those deals offer potentially lucrative payoffs down the road and multimillion dollar licensing fees up front.

PurchasePro gets its bread and butter from the monthly subscription fees -- on average about $75 -- it charges its customers. Those fees amounted to $7.2 million in the latest quarter. And because those fees are recurring revenue -- PurchasePro has had customer attrition rates of less than 5% -- the company says it is already assured of gettting at least $8 million in revenue in the third quarter without signing any new customers.

Analysts had pegged third-quarter estimates at around $10.5 million, though those are sure to rise in the wake of this quarter's results. And PurchasePro now says it'll turn profitable in the second quarter of 2001, two quarters ahead of expectations.

"I feel like the winners in the niches are starting to be defined," Johnson said in an interview. "And in the market, we're staring to be seen as the middle-market niche player."