VerticalNet

(VERT)

continued to sell off Friday, its second consecutive weak session after posting

record results for the second quarter.

At midday in New York, the stock was off 3 5/8, or 7.5%, at 44 7/16. That loss came on top of VerticalNet's 15% selloff Thursday. Both down days in the stock come amid a broader technology selloff. Don't forget, though, that VerticalNet shares surged nearly 60% ahead of earnings.

The 21% drop over two days seems out of whack with the company's second-quarter results. When VerticalNet reported earnings Wednesday night, investors had reason to be euphoric. The company grew sequential revenue by a whopping 95%, immediately establishing itself as one of the quarter's winners.

The damage being caused in the wake of the earnings stems from a debate on whether VerticalNet is a business-to-business up-and-comer or merely a wannabe in a sector that was once the darling of investors. As a volatile week ends, the naysayers have the upper hand.

The tug-of-war could signal new scrutiny from B2B investors. While strong earnings have inspired renewed optimism for B2B, the selloff in tech stocks might inspire investors to go looking for problems in its revenue mix and other areas.

"As the tape seems to be turning negative and people start looking at the glass as being half-empty, investors could take a jaundiced eye to this stock," says Eric Upin, an analyst with

Robertson Stephens

who rates VerticalNet a buy. His firm hasn't done underwriting for the company.

While Upin was referring specifically to VerticalNet, concerns there could spread to other B2B stocks as well.

Business-to-business firms, or B2Bs, enable companies to buy and sell goods and services to each other over the Internet. B2B stocks surged earlier this year before selling off steeply amid investor concerns. Second-quarter earnings helped buoy shares, but new worries could reverse that.

Horsham, Pa.-based VerticalNet builds virtual communities on the Internet for industry professionals. With 57 communities so far, from

Adhesives and Sealants.com to

Water Online, it uses very targeted content to attract advertising dollars.

Critics have chastised VerticalNet as an online trade publication, not a true B2B company.

Those critics should have been silenced Wednesday. Of its $53.6 million in revenue, only 38%, or $20.4 million was advertising-based. The majority of its revenue, or 54%, came from

NECX.com

, the company's recently acquired online exchange through which computer chips are traded between companies with excess supply and companies that need them for manufacturing.

That exchange, which VerticalNet gained last year as part of an acquisition spree, brought in $29.1 million in the quarter. The remaining $4 million in revenue came from e-commerce, or the sale of goods and services through its Web sites.

Those diverse revenue streams should be a plus for the company.

"You've gone from an advertising-based model to revenue streams that include not only advertising, but e-commerce, exchanges and licensing fees as well," said Edward McCabe, an analyst at

Merrill Lynch

who rates VerticalNet accumulate. His firm hasn't performed underwriting for the company.

"They've really become a diversified B2B play, and they're still growing like a weed."

So what's not to like at VerticalNet?

Plenty, says Robbie Stephens' Upin.

"At first glance, if you live and die by the numbers, this thing looks great," says Upin, who put out a note Thursday questioning the company's valuation of 22 times current revenue. He also noted that the company named

Joseph Galli, formerly of

Amazon.com

, as its new CEO on Tuesday, to succeed Mark Walsh, who will remain at the company as chairman. "When you look at the current valuation and factor in where the revenue is coming from and the management changes, you've got some clouds in paradise."

First, Upin says, deriving 54% of revenue from a single source, NECX, isn't necessarily positive. Second, the NECX.com chip exchange isn't an electronic exchange; it's actually more like a stock brokerage, where live people exchange orders for chips. On its conference call, VerticalNet said just "a couple million" of NECX's revenue came from online trades.

Thus, Upin's concern with how quickly VerticalNet can bring the exchange online to realize the improved margins and efficiencies of B2B.

"Not only is almost all of their commerce offline today, it's almost all in one vertical. And the other half of the revenue comes from advertising," Upin says. "So is that ultimately what is going to get investors to pay 22 times revenue -- an offline business and an advertising business?"

Walsh, the company's chairman, counters in an interview with

TheStreet.com

that VerticalNet would rather be a dot-com buying off-line companies to grow its business than waiting and becoming acquired itself. And, he says, advertising revenue should morph into e-commerce revenue on its site.

In other words, different versions of the same story. At the moment, the more negative view seems to be taking hold.