XML software firm latest to tap IPO craze

WebMethods, which builds software that allows companies to do business with each other online, hopes to raise $45 million in its public offering. From an investor's point of view, the company is doubly blessed: It markets XML-based software in the business-to-business e-commerce market, a red-hot sector that is growing exponentially as more companies tap the Web to expand their businesses.

XML is a Web standard for exchanging data that proponents say will allow companies to easily and cheaply conduct online transactions with customers and partners.

While software firms from Microsoft to Oracle have publicly embraced XML technology in the past year, analysts say WebMethods was one of the first companies to ship products with built-in XML support.

Financial and industry analysts say WebMethods could become one of the more successful public offerings in early 2000. And with a slew of companies pledging allegiance to XML, it could even become tomorrow's Linux--from an investor's standpoint, analysts have said. Over the past six months, a handful of open source firms, including VA Linux and Red Hat, have hit it big in public offerings as Linux fever spreads among investors.

In the meantime, WebMethods is working to ramp up its business. "Every company is working with XML in one shape or form, and it certainly gets attention," said Forrester Research analyst Josh Walker. "WebMethods is in a great position."

The four-year-old firm, based in Fairfax, Va., plans to offer 4.1 million shares of common stock with an initial public offering price between $11 and $13, according to a recent Securities Exchange Commission filing. Lead underwriter Morgan Stanley expects to set a price next Thursday.

WebMethods expects to trade under the stock ticker "WEBM."

"There will be strong demand for this and we think the price range will most likely be expanded," said David Menlow, president of IPOfinancial, an investor newsletter based in Millburn, N.J.

"Business-to-business e-commerce is still a strong sector of the Internet companies, and you've got Morgan Stanley as the No. 1 underwriter, which is enough for most investors," he added.

And like many Linux firms, WebMethods has never been profitable. During the first nine months of 1999, the firm lost $10.4 million according to an SEC filing. Overall revenue grew from $166,000 in 1998 to $4.5 million in 1999.

Menlow said the company's list of 130 customers and partners, which includes SAP, Dell, Cisco Systems, and shipping company DHL, are eye-openers. In fact, Ariba and SAP are using WebMethods' technology for its Web sites aimed at connecting online buyers and sellers.

The company?s impressive client list has won it strong backing from some technology heavyweights. In November, received $17 million in financing from Dell Computer, services giant SAP, and others.

"Their client list is strong," Menlow said. "In today's market, people don't just want to hear a strong description of the business strategy, they want to know other people recognize it."

Software makers that focus solely on XML technology have had mixed results on Wall Street, however. Bluestone Software, which went public last year, is hovering around the $80 per share range and just filed for another offering of 3.5 million shares.

Excelon, which went public about three years ago when it was known as Object Design, recently transformed itself from a pure database software maker to an XML specialist, is trading in the mid-teens.

With the money raised from its public offering, WebMethods plans to expand its services and consulting division, and increase its international sales by creating offices in Europe and Asia, and embark on marketing campaigns.