So B2Bs are back?
Apparently, given this week's gains for Commerce One (Nasdaq: CMRC), Ariba (Nasdaq: ARBA), VerticalNet (Nasdaq: VERT), Internet Capital Group (Nasdaq: ICGE) and Ventro (Nasdaq: VNTR). Each of those stocks posted double digit gains today.
Oh, and FreeMarkets (Nasdaq: FMKT).
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The operator of an online business-to-business 'reverse' auction yesterday became the first well-known B2B player to report quarterly results this week (Commerce One checks in tomorrow) and the second to release figures for the current earnings season (Ariba was the first last week). FreeMarkets' losses were less than expected, while revenue beat most analysts estimates by $2 million or more, depending on which forecast you care to compare.
FreeMarkets chairman and CEO Glen Meakem talked to ZDII (or at least me) this morning about the quarter's results. Meakem on his company's faster-than-expected revenue growth:
"We grew our customer base faster than the Street expected ... The other thing that happened was, we grew volume with a number of our large clients. So with our top three or four customers, we grew volume by 75 percent."
On which segments are driving the company's growth:
"Automotive and manufacturing are our two biggest sectors, but (also) the public sector. We have the government sector, we just signed a deal with the United States Postal Service. We also have a long relationship now, about a year, with the state of Pennsylvania, that's a high growth sector for us as well.
"We're really doing well in the public sector. Of course, think about all the things that the government buys, and the government by law has to competitively bid, right? ... We've bid rock salt, and we've bid office furniture, and we've bid office supplies and coal and all kinds of things. We haven't even started to bid the army boots and uniforms yet, but the day will come..."
On B2B enablers such as Oracle (Nasdaq: ORCL), Ariba and Commerce One:
"They're just software companies. We're a marketplace, and they (customers) are accessing that marketplace over the Web. They're taking advantage of our market making expertise, they're using our technology, they're using our market operations. ... We're not a software company and I don't think Wall Street understands that. "
On companies such as VerticalNet or niche market makers in the ICG portfolio:
"We don't see them in the marketplace ... Vertical strategies like that don't work. Customers want all their buyers to have a horizontal solution."
On Wall Street pressure on Internet companies to reach profitability:
"We have $5.4 billion of volume behind us, the market's a $5 trillion market. We feel strongly the right thing to do is not overreact to the (stock) market. The market is great at overreacting in the short run, and we're great at running a business. So we're focused on growing this business as fast as we can. ...
"We could slow growth down and move to profitability faster if we had to, but I'm convinced right now, given the fact that we have $175 million -- let's see, we have about $176 million in the bank right now -- we have a very, very strong financial position, there's no reason for us to change strategy and slow down -- it's $174 million (in the bank) -- the right thing for us to do right now is to grow this business."
On the company's financial position:
"We did a cash acquisition, had some acquisition-related costs that were cash costs, but if you exclude that, we spent $8 million in cash operating the business and then we consumed another $4 million of capital. So you're talking to a company with $174 million in the bank that just consumed $12 million in one quarter, so we've got a lot of rope right now, a lot of rope."
On stock market swings:
"Obviously it's not as easy to make acquisitions as it was awhile ago. For us, I think it's an advantage. I think there's been so much hype in the B2B space, and there have been frankly some very low quality companies that have gotten huge market caps, and on the surface it seems like they're doing well. Suddenly they're getting hammered, we're all getting hammered, but I think the market needs to sort out the quality companies from the air, and I'll tell you right now, we're a high quality company. We're a player."
On a contract just announced with auto systems supplier Visteon, which gained 1.75 million warrants to buy FMKT shares:
"This deal we just signed with Visteon, a 5-year firm deal, just proves to the market, number one, the (Big Three) Automotive Exchange is not monolithic, there are plenty of opportunities in B2B in automotive, outside of that exchange. They cannot meet all the needs of the automotive industry. So that exchange is not monolithic. We've landed a major long-term deal. It also proves that we're not going away.
"It's not like, oh, one of these major West Coast software firms is going to come along and create some silver bullet software that replaces our information, our marketplace rules, our governance of the market, our market operations, our speaking Hungarian, Czechoslovakian and Korean.
"The bottom line is that people who pretend that 'Oh, well, I can just create some auction software and that's done,' -- they're just betraying their ignorance of industrial markets, their ignorance of what it takes to really make plants operate. And the reality is, is that our customers are telling us and the world that we are the largest creator of value, we're the largest B2B marketplace, and we're around for the long haul."
In other words, if you believe Meakem, B2B didn't have to come back, because it never went away to begin with. 22GO>