The Day Ahead: B2B companies should deliver strong quarters

Plenty of business-to-business upside surprises looks to be flavour of the month
Written by Larry Dignan, Contributor

When Ariba reports earnings Wednesday it'll kick off what's expected to be a strong batch of business-to-business upside surprises. Commerce One, FreeMarkets, PurchasePro.com, VerticalNet are all expected to post strong results.

With the worst of the B2B correction over, B2B companies will begin laying the foundation for the second half. Merrill Lynch analyst Chris Shilakes said the major enterprises are just ramping up their e-commerce buildout. That means you can expect a lot of second half optimism.

Here's a preview of what to expect from the major B2B players:

Ariba: A First Call poll of 21 brokers is predicting a fiscal third quarter loss of eight cents a share. Friedman Billings Ramsey is predicting a two penny upside surprise, but UBS Warburg sees an in line quarter.

Analysts are predicting revenue between $47m to $49.7m. On Ariba's conference call, analysts will be looking for more details about the recent acquisition of SupplierMarket.com, as well as the second half outlook. Ariba could come in with better-than-expected sales totals.

Shilakes said this quarter would be the first to benefit from Ariba's partnership with IBM and i2 Technologies.

Commerce One: The company is expected to lose 13 cents a share in its second quarter, according to First Call. Analysts are forecasting revenue of about $48m. Report date: 18 July.

UBS analyst Andrew Roskill said investors should focus sales momentum and exchange revenue.

Another hot topic will be Commerce One's recent acquisition of services firm AppNet. With the purchase, Commerce One transformed into a services company, a fact that spooked investors. Although AppNet is profitable, it will slow growth and ding gross margins. Analysts, however, are bullish on the AppNet purchase over the long haul. Commerce One needed the consultants to implement its products.

FreeMarkets: The company, which helps customers procure parts, materials and commodities via auctions, is expected to lose 40 cents a share in its second quarter, according to First Call. Lehman Brothers analyst Patrick Walravens said he sees upside to his revenue target of $13.2m, but maintains a "neutral" rating on the stock. Report date: 24 July.

Walravens is bullish on the stock in the short term, but said FreeMarkets will need to broaden technology, products and services in the future. The company recently hired a chief technology officer to address the problem. E*Offering analyst John Ederer started coverage of FreeMarkets Monday with a "buy" rating.

PurchasePro.com: This B2B player trails its peers in terms of market capitalisation, but is gaining momentum. Walravens recently started coverage of PurchasePro with an "outperform" rating. Report date: 19 July.

The company is expected to lose 30 cents a share in its second quarter on sales of about $6.8m, up 50 percent sequentially. Most of PurchasePro's sales will derive from network fees, but advertising will grow. Walravens expects PurchasePro to boost paying subscribers to 5,961 to 9,211.

On the conference call, look for PurchasePro to detail progress with partners such as America Online and Office Depot.

VerticalNet: First Call projects VerticalNet to report a second quarter loss of 29 cents a share. Second quarter revenue will come in about $38m to $42.5m, said analysts. Report date: Week of 24 July.

Expect lots of talk about VerticalNet's partnership with Microsoft. VerticalNet storefronts are expected to double to 6,500 in the quarter, said Walravens.

Walravens is projecting $19.9m in advertising revenue, $21.3m in exchange revenue and $1.3m in e-commerce revenue.

A strong quarter is expected from VerticalNet's NECX electronic component exchange. Last week, VerticalNet acquired American IC Exchange, a privately held electronics exchange.

Expect VerticalNet's exchange revenue to grow with America IC Exchange. Derek Brown, an analyst with WR Hambrecht said the acquisition will add about $15m to $20m in 2001 sales. As for the bottom line, "it is likely to be neutral to modestly accretive to earnings over the next 9 to 12 months, and nicely accretive thereafter," said Brown.

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