FreeMarkets gains on strong 3Q

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FreeMarkets (Nasdaq: FMKT) was up 11 percent Tuesday, though analysts had mixed reactions to the company's third quarter report. The company's CEO said he's comfortable with progress, and sees growth "steady going forward."

FreeMarkets reported a decent quarter Monday, posting 37 percent sequential revenue growth and beating the First Call estimate by 9 cents per share. Gross margin improved 3 percent to 46 percent.

Shares were up 5.03 to 55 Tuesday morning. Competitor Ariba (Nasdaq: ARBA) became the first B2B company to break even last week.

Patrick Walravens of Lehman Brothers B2B Equity Research maintained a "3-Neutral" rating on the stock, and said that though the company reported a strong quarter, it "continues to lag behind its B2B brethren in revenue growth and profitability."

"While we are warming up to FreeMarkets' fundamentals, at 15 times our 2001 revenue estimate, we believe FreeMarkets is currently fairly valued," Walravens stated in a report. Walravens said he does not see current upside to revenue projections for the company, and though losses diminish, 5 quarters is still a long wait until cash earnings per share breakeven.

Glen T. Meakem, Chairman and CEO of FreeMarkets commented on a phone interview Tuesday morning that FreeMarkets is operating on a slightly different strategy than its peers, by concentrating on volume.

"In the long run, the promise of the marketplace is getting a piece of the volume," he said.

He said existing customers accounted for the bulk of the company's revenue growth with newly added customers contributing in future quarters. He added that Freemarkets' growth will be "steady going forward." The company will consider acquiring privately held companies since valuations have come down, he added.

Other analysts were upbeat on the stock; Prudential Securities and Merrill Lynch said on Tuesday they were cutting FreeMarkets's loss estimates based on strong third-quarter results.

Prudential raised the company to a "strong buy" rating from an "accumulate," cut its 2000 loss estimate to $1.22 per share from $1.40 and set the price target at $85.

"The driver to the quarter was from strong penetration of existing customers and good momentum to bring on new customers," said analysts in a research note.

Merrill Lynch cut FreeMarkets' 2000 loss estimate to $1.22 a share from $1.40, and the 2001 loss estimate to 80 cents a share from $1.22 a share.

Reuters contributed to this report.