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All of software got tarred Tuesday. But


got feathered, too.

While the market was reeling from


disclosure that it would report just half of the $180 million in revenue that analysts wanted, PurchasePro sank like a stone tied to a lead brick, and ended the day down 41.8%, or $2.69, at $3.75. That's significantly more than Ariba's 31.7% drop, or the 19.9% drop of the

Merrill Lynch B2B Internet HOLDRs


, a basket of similar stocks.

PurchasePro's closing price is 95.7% lower than the stock's all-time split-adjusted high of $87.50, reached in 1999, and 88% below its most recent high, reached just two months ago, of $31.36.

PurchasePro's Tuesday's drop was certainly tied to Ariba's woes -- they sell into similar markets.

But PurchasePro fell more than others because of a note put out by analyst George Santana at

Wedbush Morgan Securities

. The analyst initiated coverage of the stock on Tuesday with a sell rating, highlighting what he called aggressive accounting and the company's practice of swapping stock warrants for revenue from its strategic partners. (Wedbush has done no underwriting for PurchasePro.)

Now, sell ratings are still fairly rare on Wall Street, even after the stock market's plunge, so Santana's note likely caught the attention of traders. But it had an extra sting, if only because it underscored, once again, the lack of

comfort many investors have with the way PurchasePro

handles its numbers. On Wall Street, sooner or later, after the hype winds down and willingness to believe dries up, the numbers always matter. Always.

And Santana says PurchasePro's numbers don't pass the sniff test.

"A lot of the enthusiasm for PurchasePro -- at least as far as there's enthusiasm for any technology stock these days -- is based on PurchasePro reporting incredible December 2000 numbers. They really stood out from the pack," says Santana. "But it's really this aggressive accounting that's responsible for the upside surprise in the December quarter."

In PurchasePro's December quarter, revenue jumped 94%, sequentially, to $33.6 million. That was more revenue than the previous three quarters combined.

The accounting to which Santana refers revolves around a partnership PurchasePro announced with



in December, when the companies said they would cross-sell their software to each others' customers.

Santana says that deal entailed PurchasePro buying $10 million in software and services from BroadVision, while selling BroadVision $6 million of its own. But instead of booking the transaction on a net basis -- that is, as a $4 million expenditure -- Santana says PurchasePro accounted for its $10 million in new software as an asset. Since it wasn't accounted for as an expense, it didn't count against cash flow. In contrast, he says BroadVision recognized revenue from the transaction on a net basis.

But that was only one deal. Santana says PurchasePro purchased a total of $14.2 million in software from companies that it then sold its own software to during the December quarter. The subsequent accounting of those transactions, consequently, inflated PurchasePro's cash flow to $17.3 million, Santana says. On a net basis, he figures, it would be only $3.1 million.

The analyst, however, is careful to point out that PurchasePro's accounting practices are within the letter of generally accepted accounting practices, or GAAP. He would just prefer to see the company handle its numbers in a more conservative manner. PurchasePro executives were not available for comment Tuesday.

"It's not a question of are they operating and doing something wrong. It's more a question of how aggressive do you want to be with your accounting," Santana says.

The other sticking point that Santana has on the company is its well-worn practice of giving its partners warrants on its stock in exchange for revenue dollars. That's the kind of arrangement that PurchasePro has with its highest-profile partner,

AOL Time Warner


, with whom it struck a deal in March 2000.

Under the terms of that deal, PurchasePro agreed to pay AOL more than $70 million in cash, and to give AOL warrants to purchase 1 million shares of its stock at $63.26. In return, AOL would resell PurchasePro's software, and plug its own network of small business users into PurchasePro's exchanges.

But AOL only generated a total of $12.5 million in revenue for PurchasePro in 2000, and PurchasePro recently repriced the firm's warrants to be exercisable at a penny a share.

"The flap over the aggressive accounting related to the software swaps really built upon our original concerns that PurchasePro is really a story of warrants for revenue deals," Santana says. "If PurchasePro has to stand on its own without the ability to hand out warrants, would its solutions really have the adoption in the marketplace that its revenue implies? That's where we find the problem to the investment story."

PurchasePro has made similar warrant agreements with







Office Depot



Giving away warrants and swapping products to drum up business is nothing new. It's just that PurchasePro is so dependent on those kinds of deals, that Santana ultimately sees an unfavorable conclusion to the process.

"You can only report rapidly increasing revenue streams from sales of software to strategic partners who are in turn only buying that software ahead of co-marketing agreements for so long," Santana says. "There's no sell through to the end users. Eventually, that kind of thing just collapses, because your revenue stalls."

On Tuesday, it was PurchasePro's share price that stalled more than others, based on Santana's concerns.