E-commerce Software Providers Sink After Reports

Ariba and FreeMarkets both gave outlooks for revenue that are below Wall Street estimates.
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E-commerce software providers

Ariba

(ARBA)

and

FreeMarkets

(FMKT)

were down sharply Tuesday, after reporting weak quarterly results and disappointing guidance.

Ariba, which reported a 19-cent loss after the close Monday, was off 49 cents, or 12.4%, to $3.45 in recent trading. FreeMarkets, which reported a 28-cent loss, shed 54 cents, or 7.9%, to $6.28. Trading was heavy for both issues.

For the second quarter of its fiscal year, Ariba tallied a net loss of $51.6 million, or 19 cents a share, compared to a loss of $151.5 million, or 59 cents a share, a year ago, according to generally accepted accounting principles. Revenue was $59.3 million, up 3% from the $57.4 million reported in the second quarter of 2002.

Ariba set guidance for the current quarter under Wall Street estimates. The company said revenue in the June quarter is expected to be $55 million to $59 million; Wall Street had expected $60.3 million. The company said it will lose a penny to 3 cents per share, compared with Street estimates that the company will break even on a per-share basis.

The second quarter of 2003 included noncash amortization charges of $49 million for goodwill and other intangible assets and $1.2 million for stock-based compensation. In addition, the company incurred approximately $7 million in expenses during the second quarter of fiscal 2003 relating to its recently completed accounting review, which was roughly $5 million higher than expected.

For the corresponding quarter in fiscal 2002, Ariba recorded noncash charges of $141.3 million for amortization of goodwill and other intangible assets, $5.1 million for stock-based compensation and $5.6 million for warrant costs, as well as a benefit of $158,000 for restructuring costs.

Software license revenue for the quarter was $27.7 million, up 10% from last year's total of $25.2 million.

Wall Street expected the company to earn 2 cents (on a pro forma basis) on revenue of $58.2 million, according to Thomson Financial/First Call.

FreeMarkets: Profits Still Elusive

FreeMarkets reported that first-quarter revenue was $34.5 million, compared to $43.2 million a year ago. The company lost $11.8 million, or 28 cents a share, essentially flat with the 2002 first-quarter loss, according to generally accepted accounting principles.

The company's operational loss, which includes fees and excludes stock-based expenses and goodwill charges, was 6 cents per share, 4 cents better than FreeMarkets' and analysts' expectations. In the year-ago quarter, the company had an operational loss of 7 cents.

"The economic environment and IT

information technology spending climate remain very challenging," said Joan Hooper, FreeMarkets' executive vice president and CFO, in a prepared statement.

Looking forward, FreeMarkets said it expected second-quarter revenue of $33.2 million to $34.2 million and a loss, excluding items, of 6 cents a share. Including items, it said its loss would be 17 cents.

Analysts are expecting FreeMarkets to have a pro forma (excluding items) second-quarter loss of 4 cents a share on revenue of $36.05 million.

FreeMarkets said it expected full-year revenues of $143.75 million and a pro forma profit of 2 cents a share. Including items, the company said it would post a loss of 53 cents.

Analysts were expecting full-year revenues of $151.85 million and a pro forma loss of 2 cents.

The last time the company turned a GAAP profit on an annual basis was in 1998, when it earned just under one-tenth of a penny per share.