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Commerce One tops 4Q estimates, raises outlook

    Commerce One posted a smaller-than-expected loss on surprisingly strong sales in its fourth quarter Thursday, losing $10.8 million, or 5 cents a share, on sales of $191.4 million. It also raised estimates for fiscal 2001 and predicted profitability by the second quarter.

    First Call Corp. consensus pegged the B2B software and services provider for a loss of 7 cents a share on sales of $175.6 million.

    Commerce One (Nasdaq: CMRC) shares closed off 25 cents to $21.69 ahead of the earnings report before moving up to $25.13 in after-hours trading.

    The $191.4 million in sales represents an impressive 1,033 percent improvement from the year-ago quarter when it lost $11.7 million, or 8 cents a share, on sales of $16.9 million.

    Including a variety of charges, Commerce One posted a net loss of $197.5 million, or 99 cents a share, compared to a loss of $28.8 million, or 20 cents a share, in the year-ago period.

    For the fiscal year, Commerce One posted a loss, excluding charges, of 33 cents a share on sales of $401.8 million compared to a loss of 46 cents a share on sales of $33.6 million in fiscal 1999.

    During a conference call with analysts, CEO Mark Hoffman credited the company’s partnership with SAP (NYSE: SAP) for the upside surprise and improved sales to private e-marketplaces.

    “There have been predictions of a slowdown in private and public marketplaces,” Hoffman said. “However, we strongly believe the opportunities are bigger today than ever. We’re pleased by the progress we’ve made in building a durable foundation.”

    Of the $191 million in sales, $89 million was derived from licensing sales, up 36 percent from the third quarter, and $101 million came from services sales.

    Raises 1Q, 2001 sales targets

    CFO Peter Pervere told analysts to expect sales of between $205 million to $210 million in its first quarter, well above the current estimate of $184 million and a loss of between $7 million to $9 million.

    By the second quarter, Pervere said, the company will post its first quarterly profit.

    It also raised its fiscal 2001 sales target to between $900 million to $950 million, up from the consensus estimate of $822.7 million.

    More impressive, company officials anticipate 45 percent of its first-quarter sales will come from licensing sales to private and public marketplaces.

    Gross profit margins are expected to check in between 58 percent to 60 percent in the first quarter, jumping to the mid-60s in the second half.

    “We see the opportunity to double our sales again in 2001,” Pervere said.

    Bob Johnson, an analyst at ABN AMRO, was impressed with Commerce One’s earnings report and guidance.

    “They’re doing a good job of getting away from their public marketplace roots,” he said. “They’ve been the poster boy for the public markets which have come under pressure of late and contributed a great deal to its valuation compared to Ariba or i2.”

    Ahead of the earnings report, Johnson predicted total sales of $175.4 million and a loss of 7 cents a share.

    Robert Schwartz, an analyst at Thomas Weisel Partners, predicted sales of $177 million and loss of between 4 cents to 5 cents a share.

    Hoping to avoid Ariba, i2 pitfalls

    “The company's reporting follows closely on the heels of Ariba's results last week, and we believe that investors will scrutinize Commerce One's network revenue, direct procurement/private marketplace traction, sales cycles, and its allowance for doubtful accounts,” he said in a research note.

    Indeed, fellow B2B software developers Ariba (Nasdaq: ARBA) and i2 Technologies (Nasdaq: ITWO) have also posted strong sales and improved outlooks for fiscal 2001.

    However, both stocks have retreated of late for a different reasons.

    Ariba shares were roughed up following its strong second-quarter results. Even though it beat the Street view, earning 5 cents a share on sales of $170 million, concerns regarding deferred revenue compelled analysts to downgrade the stock.

    i2 also posted strong sales and earnings in its fourth quarter, but lost ground Thursday primarily because it didn’t meet the First Call Corp. consensus estimate that it helped to increase.

    Before i2's bullish pre-announcement nine days ago, analysts were predicting a profit of 5 cents a share or less in the quarter.

    Commerce One officials were quick to point out that they would not be providing further guidance on their first quarter or the fiscal year between reporting periods and that it hadn’t changed its revenue accounting policy since its inception.

    Last quarter, Commerce One topped analysts’ estimates when it reported a loss of $14.7 million, or 9 cents a share, on sales of $112.7 million.

    Commerce One shares raced up to a 52-week high of $137.81 in March before falling to a low of $16.50 in January.

    “This stock is grossly undervalued compared to the rest of the B2B stocks,” Johnson said. “I’m bullish on it but I’m afraid of my own shadow after watching what happened to Ariba and i2.