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PurchasePro slips after downgrade

Shares of the company tumble 14 percent after a Prudential Securities analyst cuts his rating, citing a low conversion rate of registered users into paying customers.

Shares of tumbled 14 percent after a Prudential Securities analyst cut his rating, citing a low conversion rate of registered users into paying customers.

Shares were off $1.09 to $6.44, a 52-week low, in early morning trading Wednesday.

Prudential analyst Tim Getz cut his rating on the stock from "accumulate" to "hold" and dropped his price target to $10 from $25.

PurchasePro is a business-to-business e-commerce company that operates electronic marketplaces designed to connect buyers and sellers over the Internet.

Getz cited the company's deal with AOL Time Warner's Netscape division for one of those marketplaces in his downgrade. Internet businesses continue to register on Netscape's Netbusiness site, but the numbers of businesses that became paying customers was "far below expected minimal thresholds."

Getz had already lowered his rating on the stock in February when he did preliminary checks with the Netbusiness marketplace.

"We believe that (PurchasePro's) marketplace license sales will likely become susceptible to technology spending cutbacks," he said, noting that "marketplace license sales and related maintenance and hosting fees have been fueling the company's rapid revenue growth over the past two quarters, and represent approximately 80 percent of our 2001 revenue estimates."

Earlier this month, the company attempted to reassure investors about its future, saying it was comfortable with projections for the first quarter and for fiscal 2001. The note followed PurchasePro's acquisition of BayBuilder, a maker of strategic-sourcing technology, for $15 million in stock and cash.

PurchasePro had topped estimates for its most recent quarter, earning $7.6 million, or 11 cents a share, on sales of $33.6 million.

That news sent the company's stock up 15 percent, a solid gain considering it had dropped more than 42 percent the previous week. That drop followed a report from Barron's questioning the company's business model and valuation.

PurchasePro had retorted that the article, which called into question the company's accounting methods and claimed it was losing partnerships, was "riddled with inaccuracies and innuendo."