Nope, no president yet. Oh, and your B2B stocks are lacking leadership as well.
Like the rest of tech, business-to-business stocks have been taking it on the chin since Nov. 7, when we didn't elect a president.
is off about 50% since the election, while
is off 45% and
, the stealth B2B that builds back-office computer systems, is down 35%. The gradient of other B2B stock charts, from
, has been just as steep.
But, like the rest of the technology market, B2B has some problems of its own that aren't likely to leave when a president is finally elected. Complicated technology, growing evidence of slowing sales, high valuations and a backlash from the hype that pervaded the sector this spring are now mocking B2B investors like a turkey wearing a Kevlar turtleneck.
Take Ariba and Commerce One. These two poster children of B2B have spent most of 2000 selling more software than corporate America knows what to do with. In fact, that's the problem. Analysts say that while corporations love the software that lets them buy and sell over the Internet, it's taking longer to install it and get it up and running than many thought.
"The companies' guidance early on this year was that they were deriving revenue from license sales, and that as people implemented the software, the companies would then derive a piece of every transaction," says Melissa Eisenstat, an analyst at
. "But we're not seeing the latter part of that." (Eisenstat rates both companies a buy, and her firm hasn't done underwriting for either.)
That, in turn, has cut into the recurring revenue that these companies are supposed to get from those transaction fees, levied on the goods sold through the software. So while the companies have built up impressive revenue from upfront license sales, the recurring revenue -- which Wall Street prefers -- is still just trickling in.
That argument may seem like nitpicking to some. After all,
has been in the White House longer than these companies have been in business, and they're both turning in hundreds of millions of dollars in revenue annually.
Problem is, both companies' valuations -- like all of B2B -- got so far ahead of themselves during this year's B2B hype that they had a long way to fall when people started finding chinks in the armor. Even after the swoon they've seen lately, Ariba is trading at 27 times fiscal 2001 sales, while Commerce One is at 10 times projected revenue. Cheaper than they were, but certainly not cheap.
Why Ask Why?
"As investors' negative sentiment has deepened, one of the things we find people doing is looking at their richly valued companies and saying, 'Why does this deserve this valuation?' " says Gavin Mlinar, B2B analyst at
in New York. He rates Commerce One a strong buy and Ariba a buy, and his firm hasn't done any underwriting for either company. "Then, after that, they keep on looking. People are just looking to point out anything negative about these companies."
He points to tumbles last week by both companies' stocks when questions were raised about Ariba's
partnership with i2, and concerns surfaced over Commerce One's
Which brings us to the next problem for B2B: The potential for slowing sales as big firms feel less competitive pressure from faltering Internet companies. That's the view of Richard Williams, an analyst at
who has been bearish on several software stocks lately.
"These customers are under less pressure from the dot-coms, so they don't have to have the answers to all the economic decisions right away like they did before," says Williams, who rates Ariba and Commerce One hold. (His firm hasn't done underwriting.) "That's a great opportunity to step back, map out their strategies and decide how they want to get where they're going."
Looking for a Lift
With those kinds of issues stacked up against B2B, few are expecting a broad-based rally after we get around to deciding who will live at 1600 Pennsylvania Ave.
"We might get a bit of a lift if the election can be sifted out, but I think that for these guys to rally, you'd look for more of the tech blue-chips and bellwethers to come back on positive news from them," Sands Brothers' Mlinar says. "Problem is, we're still hearing negative stuff from the big boys."
Jon Ekoniak, B2B analyst at
U.S. Bancorp Piper Jaffray
, says when all is said and done, the shakeout being felt in B2B may be for the best, at least for those companies that are still standing on the other side.
"Investors can be thankful for the fact that 2000 was the year of the shakeout," says Ekoniak. "There was a lot of hype and enthusiasm, and now there's the shakeout we're seeing every day. Next year, 2001, will probably focus on a limited number of companies that are able to execute. The victors will emerge clear and bright and we'll be able to follow them."
Maybe by then, we'll even have a president.