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B2B Stocks Keep Sliding as Investors Talk of a Change in Focus

Exchanges are out, infrastructure in. And valuations are getting a long, hard look.

So the

marketplace isn't where every business-to-business investor needs to be anymore.

Now there's talk of a shift within the ever-mutating sector away from exchanges, which were all the rage amid the months-long run-up, and toward infrastructure: those "value-add" companies that sell software and services into those exchanges. At the moment, too, the shift is primarily to the value-adds that retain some value -- the ones that aren't valued so ostentatiously.

Analysts emphasize that the broad selloff in B2B goes hand in hand with the meteoric rise that anything B2B enjoyed just a few short months ago. Now, with revenue models for market exchanges being called into question and old-time industrial giants charging into the new world of B2B, the perception about the future of B2B has changed (though the stocks remain light years ahead of their IPO prices and early valuations). And on the Internet, perception is reality.

Great American Meltdown Pot

"When you put all those things into the pot and mix it all together, what you've got all of a sudden is very bad sentiment," says Edward McCabe, a

Merrill Lynch

analyst who follows B2B stocks. "And Internet stocks -- and B2B is no exception -- are very susceptible to the effect of sentiment."

That sentiment has been cooked on the heat of the sector's unbelievable valuations, and has burned those companies most closely identified with B2B.

Look no further than B2B stalwart

Commerce One

(CMRC)

, which ended Tuesday at 110, or just a third of its all-time high of 331. Then you've got

Ariba

(ARBA)

, which announced last week it expects to beat revenue estimates by 25% this quarter when it reports on Wednesday.

It ended Tuesday down 9 3/16 at 81 9/16, less than half of its all-time high of 183 5/16. Even

TheStreet Recommends

i2 Technologies

(ITWO)

, a supply chain software provider that operates in the supposedly safer infrastructure sector, garnered a price of just 99 1/2 at 4 p.m. Tuesday. That's off its all-time high of 223 1/2.

The Lesser Names

The shift away from the well-known B2Bs was evident as well in the

Safeguard Scientific

(SFE) - Get Safeguard Scientifics, Inc. Report

-inspired

selloff on Monday, after the B2B investment firm said it would concentrate on Internet infrastructure plays.

Companies such as

webMethods

(WEBM)

, which provides infrastructure software for business-to-business exchanges, benefited. webMethods rose 6 5/8 to 182 3/8 during Monday's selloff, while more exchange-oriented stocks such as Commerce One and Ariba suffered double-digit losses. The dichotomy isn't perfect, of course: On Tuesday, webMethods rejoined the B2B malaise, dropping 10 3/8 to 178 5/8.

"There's definitely a sort of flavor-of-the-month mentality going on out there right now," says Ian Morton, an analyst who follows B2B stocks at

Chase H&Q

. "You saw a lot of people moving into the sector early, but as it turns out, it was early in, and early out."

I Need Your Support

In all of this, there may be a silver lining. With B2B leaders like Commerce One, Ariba and i2 selling off, those companies may offer buying opportunities in the future -- though few observers are calling a bottom in the sector yet. Second, while B2B highfliers are selling off badly, some lesser-known B2B stocks found more support, whether due to lower valuations or simply the blessing of obscurity in a cross-hair market.

Take, for example, a company called

Bottomline Technologies

(EPAY) - Get Bottomline Technologies (de), Inc. Report

. During the sickening selloff and recovery of April 4, the electronic-payment-software maker actually closed higher. It reported that

Citibank

(C) - Get Citigroup Inc. Report

would use its software to bill and pay its own suppliers and customers.

While Bottomline ended Tuesday down 2 1/8, or 4%, at 48 1/8, it has hardly felt the pain of the better-known B2Bs in the recent purging of the sector.

"We haven't been that visible in the marketplace," says Dan McGurl, Bottomline's chairman and chief executive. "If you look at a longer view, Commerce One and Ariba have had enormous values attributed to their business models. Bottomline only has a market cap of half a billion."

'Repricing'

That may not offer conclusive evidence that valuation is actually starting to matter among B2B names, but at least it's a suggestion. Bottomline, in any case, trades at about 13 times sales. And valuation has always been a thorn in the sides of B2B and the Internet.

"Clearly, when these things were at their peak, they got way ahead of themselves," Merrill's McCabe says. "The market to some degree may be repricing these stocks to say 120 times revenue is not a suitable valuation."

Thank God someone is. Now, if we could just do something about that selling.