Updated from 3:38 p.m. EDT:
saw its shares slide 8% Monday as cost worries and speculation over executive-suite shuffling pounded the stock.
Even as other business-to-business, or B2B, companies bathed in the glow of a sunny earnings season -- the basket of B2B stocks represented by the
Merrill Lynch B2B Internet HOLDRs
rose 5% -- PurchasePro saw its shares drop 3 3/8 to 39.
Two factors explained the move. The company opened a $5.9 million data center in Las Vegas, its headquarters, to help manage its growing customer base. Wall Street saw the move as building when PurchasePro could have bought. Many tech firms outsource their technology and Internet hosting needs to companies like
, believing the strategy is more efficient and cost-effective than developing and maintaining such data centers in-house.
The second factor was less straightforward. Some Wall Streeters believe short-sellers, who bet on a stock's decline, were spreading negative rumors regarding a PurchasePro executive's departure. Ian Toll, an analyst with
Credit Suisse First Boston
, says the company's chief technology officer, Michael Ford, retired a few weeks ago after being diagnosed with a serious illness. Though Ford's retirement was mentioned in a July 13 press release, PurchasePro didn't provide a reason for his departure.
"This is an example of where a company makes an announcement and tries to observe social niceties by not drawing attention to a difficult situation," says Toll, who rates PurchasePro.com a strong buy. His firm underwrote a secondary offering for the company in February. But "you have a trigger-happy short-seller spinning it to be a potential negative for the company."
Charles Johnson Jr., the company's chairman and chief executive, said the company became aware of Ford's situation about four months ago, and started planning a transition to the new CTO, Michael Kennedy, at that point. Johnson said the company did not disclose the reason for Ford's departure because of its personal nature.
The cost of the data center was also a factor in Monday's selling, in some minds.
"It's not a negative in the long term," says Tim Getz, an analyst at
, who rates the stock a strong buy and whose firm has done banking for PurchasePro.com. But in the short term, "the company is spending $6 million on infrastructure that it could have outsourced," the analyst explains. "The Street believes there are more benefits to outsourcing right now."
Business-to-business firms enable companies to buy and sell goods and services to each other over the Internet. PurchasePro.com makes money by charging small and midsize businesses subscription fees for access to its network of buyers and suppliers, run completely over the Internet.
Potentially adding to the weight on the stock Monday was the fact that fast-growing PurchasePro isn't all that big: When it reported second-quarter earnings July 19, revenue jumped 109% from first-quarter levels but amounted to just $9.5 million. The expense of the data center, compared with PurchasePro's tiny revenue base, could add to Wall Street's worries about costs.
"The positive is they have control of the customer," Getz says. "The negative is that it's a large investment up front."
Monday, investors focused on the negative.