IPO Update: WebMethods soars up 508 percent

WebMethods (Nasdaq: WEBM), an XML-based business-to-business software company, closed up 177 5/8, or 508 percent, to 212 5/8 Friday after pricing its shares at $35 a piece.

The stock soared as high as 215 in early trading.

The company's 4.1 million share offering had been expected to be priced between $11 to $13 per share through lead underwriter Morgan Stanley.

"It's pure B2B, and that sector's on fire," said Kenan Pollack of IPO Central. Ariba (Nasdaq: ARBA), PurchasePro (Nasdaq: PPRO) and others like it have been exploding, he said.

The other thing webMethods has going for it is XML, Pollock said. That and its B2B tag should give the stock a "double-whammy."

"XML is one of those buzzwords that hasn't seeped into the investor lexicon yet. It hasn't been brought to fruition, but it will later this year," Pollock said. XML, or Extensible Markup Language is a more flexible format than HTML, tags to be defined by the web site developer, and enabling Web pages to function like database records.

Like most IPOs, webMethods' losses outpace its revenue. For the nine months ended December 31, webMethods lost $20.2 million on revenue of $12.6 million, compared to a loss of $2.7 million on revenue of $2.2 million in the 1998 period.

The company currently gets all its revenue from licensing its webMethods B2B software and providing related professional services, maintenance and support.

The company also said it relied upon one customer for 31 percent of revenue in the 9 months ended December 31, and its relationship with SAP AG (NYSE: SAP) is also critical to business. In March 1999, it entered a development partner agreement with SAP AG, whereby SAP AG provides webMethods endorses its software to its customers.

WebMethods' competitors include large software vendors, companies that develop their own business-to-business e-commerce integration, electronic data interchange, or EDI, vendors, and application server vendors who have added XML capabilities to their products.