B2B stocks carried by companies' good fortune

Ariba recently won the WorldWide Retail Exchange venture, acquired SupplierMarket.com, and beat Wall Street's estimates for the third quarter. At the same time, Commerce One announced a new partnership with Convergent Communications to provide access for its BuySite application to small and midsized businesses.

That helped spark a general rebound in business-to-business stocks, according to an analysis paper released by the Delphi Group.

The once red-hot sector, expected to be worth up to $7 trillion by 2004, has cooled in recent months. Share prices in some companies went into a serious slump, in some ways mirroring the slowdown in the consumer e-commerce market.

E-commerce software makers Ariba and Commerce One--rivals that are the poster children for the business-to-business movement--have lost billions in value since the beginning of March.

However, analysts are pointing to those companies' recent successes as positive moves that have helped stem the recent stock price downturn.

"Ariba and Commerce One tend to be considered bellwether stocks in the industry," said Larry Howes, an analyst with the Delphi Group and co-author of the report. "It was inevitable that we would see business-to-business stock flatten...But with the leaders in the industry making positive announcements, some investors appear to be coming back to the sector."

At today's close of regular trading, Ariba was down $1.75, or about 1.56 percent, to $122.63--but well above its 52-week low of $16.56. Commerce One shed $5.56, or about 7.95 percent, to $64.38--also a far cry from its 52-week low of $4.41.

The goal of business-to-business ventures is to build online marketplaces for industrial and commercial items. Companies selling specialized software and offering online exchanges promise to decrease the cost of doing business, thereby increasing profits and making new, more economically sound ventures possible.

"There are obvious ebbs and flows going on in the market today," said Andrew Bartells, an analyst at Giga Information Group. "A lot of the business-to-business marketplaces like VerticalNet and PlasticsNet, or marketplace enablers like Ariba and Commerce One, got far ahead of what a good valuation ought to be. There were also unrealistic expectations in the market as well, so they got battered.

"But some of these companies may have been battered too far," he said.

Ariba and Commerce One have boosted investor confidence in the business-to-business sector in general because they are still winning customers, Bartells said. "It doesn't matter if their customers are business-to-business start-ups or consortiums of established companies, they still have a marketplace for their products."

But to sustain the upward swing in business-to-business stocks, there needs to be more news on deals and functionality added to business-to-business software offerings, Howes said.

Ariba's recent purchase of SupplierMarket is a good example of adding new functionality to existing offerings, because it provides Ariba more chances for supplies to be purchased directly by multiple parties, Howes said. The deal takes a major step beyond the indirect marketplace model that has defined Ariba's e-procurement network, as well as that of its competitors.

The new elements brought by the SupplierMarket acquisition expand the reach of Ariba's trading network for existing customers and address the interests of organizations that need a buy-direct, business-to-business exchange model, Howes said.

For Commerce One, the Convergent deal offers the ability to provide e-procurement capabilities to its clients as well as access to the Commerce One trading network for Convergent's application service provider (ASP) customers.

"Right now everything is focused on buy-side e-commerce," Howe said. "Buy-side is fine when you're building an exchange," but not enough to make a venture a complete success, he added.